If you have been keeping in the loop with our updates, you will see that we have posted many articles on the making tax digital (MTD) transition. The new making tax digital for income tax self-assessment (MTD ITSA) will replace the self-assessment tax form for unincorporated businesses. This will come into action from April 2014 for sole traders and April 2025 for most partnerships.
How Will Business Transactions Be Reported?
As stated in the MTD ITSA regulations, you will need to hold records of your business transactions in digital format. Each quarter, these will then be used to send a summary of income and expenses to HMRC. Along with this, you will also need to submit an end of period statement (EOPS) after the tax year ends, along with a finalisation statement reporting all other non-business income. These reports will have to be submitted using MTD-compatible software of which our team can help you to implement and begin using.
What Date Will Reports Need To Be Submitted?
The government has decided that all incorporated businesses will need to report their profits or losses for the periods that align with the tax year (6th of April to the 5th of April). If your business uses different dates, you may have to submit estimated figures in your EOPS. Any accounting periods ending between the 31st of March and the 5th of April will be treated as ending on the 5th of April.
For those that use an accounting period that does not end on the 5th of April, we will need to discuss which profits or losses will need to be reported in the transition year 2023-24. It is likely that some profits will be reported earlier, and you may have a larger tax bill for 2023-24. In such cases, it may be possible to spread the extra tax due over five years.
This process will take some planning, so we recommend getting in touch with our team as soon as possible.