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Making Tax Digital for Income Tax – Position Statement on Prospective Fee and Service Changes

This Content Was Last Updated on March 8, 2024 by Jessica Garbett

 

Position Statement on Prospective Fee and Service Changes for Making Tax Digital for Income Tax

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is set to come in from April 2026.

This document is a Position Statement on Prospective Fee and Service Changes by Whitefield Tax and YogaTax

It represents our intentions at March 2023 and is not a conclusive position.

MTD ITSA was due to come in from April 2024 with a £10,000 threshold.  In December 2022 it was delayed to April 2026 with a £50,000 threshold, the threshold falling to £30,000 from April 2027.  We’ve updated the dates and thoughts below to reflect this.

 

What Changes Will MTD ITSA Bring in?  Who Does It Apply To?

MTD ITSA comes in from April 2026 for:

  • Sole Traders and Partnerships
  • Landlords

This is a deferral from April 2024 as originally planned.  The new staging is:

  • From April 2026 sole traders, landlords and partnerships with turnover of £50,000 or more
  • From April 2027 sole traders, landlords and partnerships with turnover of £30,000 or more
  • Position for andlords and businesses with turnover below £30,000 being reviewed (last update on this, December 2022, and nothing further expected for some time – probably one to two years)

 

The key obligations brought in by MTD ITSA are to:

  • Keep Digital Records
  • Submit Quarterly Interim Returns to HMRC digitally, one month after quarter end
  • Submit final returns to HMRC by 31 January after the end of the tax year

These requirements do not apply to Companies or to Company Directors in receipt of salary / dividend only.  They would apply to Company Directors who have separate Self Employment or Rental Income over the threshold.   It is anticipated similar requirements will apply to Companies at some stage, date to be confirmed, but Government says not before 2026.

For more details on the requirements see our guide at:
Making Tax Digital

 

More Detail – Submitting Returns

Each trading or property business must submit five returns, being

  • Four quarterly returns, at the end of the next month – HMRC refer to these as “Income and Expense Updates”
    • The intention is these are automated from your software
    • These returns do not need to be as detailed as a Self Assessment
    • You will be able to see an updated tax calculation for the year at this stage, although payment timescales are not being changed
  • The quarterly return obligations apply to each business, not per individual.  So, if an individual has both a trading business and a property business, there will be a separate return cycle for each of these

The individual then must submit a Final Return called a Crystallisation:

  •  Crystallisation return by 31 January after the end of the tax year
  •  Contains miscellaneous income detail, eg savings and investments, income from employments, deductions like Gift Aid and pensions
  • Contains a declaration of completeness for the tax year
  • Broadly equivalent to the main Self Assessment return

Presumably, and there has been nothing from HMRC to the contrary, the existing Self Assessment regime applies to businesses and landlords with turnovers less than the threshold.

 

Our Involvement as Your Accountant

As you would expect, we are planning ahead.

  • We are aware that the support needs of our clients will vary, and in some cases the changes coming in are quite daunting.
  • It is clear that both we ourselves and our clients will need to plan ahead for the implementation of Digital Record Keeping, including transition, training and support.

In terms of our fees our plan is a stratified approach with three levels of service:

  1. A Year End only service at similar fee levels to existing.  We would submit the annual year end reconciling returns – the simpler quarterly returns you prepare and submit yourself.
  2. A Quarterly Check service – where we check and submit the quarterly returns as well as doing the year end reconciling returns – expect additional fees for this to be roughly £50 to £100/quarter plus vat.
  3. A “Brown Envelope” service where we can take over all data entry and submission – this will be bespoke pricing, but as a guide would typically range between £50 and £250/m + vat.

For 1 and 2 you will need to budget for software / apps on top of this; with 3 we can incorporate the software into our agreement with you.  We are “open platform” as a firm, so will work, where possible, with your choice of software, but in the absence of any other preference we guide clients toward FreeAgent.

 

Next Steps

From Ourselves

Over coming months as HMRCs plans crystallise we will be:

  • Contacting clients to discuss how they will approach compliance with these changes
  • Contacting clients to discuss the level of support they may need so we can plan resources
  • Refining our fee structures for these services
  • We will be slowing the pace down on this during 2023 and 2024, increasing during 2025 into 2026

Additionally, we are monitoring HMRC announcements and briefings as they emerge.

From Clients

Please start to consider how you will address Digital Record keeping requirements.  Whilst spreadsheets can be used, linked to HMRC via Bridging Software, a cloud-based accounting package like FreeAgent is likely to be more appropriate in most instances.  We are “open  platform” so if you feel that something like Xero, QuickBooks or Sage is more appropriate then we will happily work with this.

Also please start to think about how much you would wish to do yourself and how much you may wish to delegate to others, the latter including ourselves as your accountants.

Finally, please make sure you keep appraised of our briefings on MTD.