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Business Tax  •  HMRC  •  Personal tax  •  Small Business

Changes to Self-Assessment for business owners and landlords

By RJP LLP on 28 September 2021

The need for self-employed business owners and landlords to submit an annual tax return is changing. The old system is being replaced with “Making Tax Digital for Income Tax Self Assessment” (MTD for ITSA), a new HMRC scheme that self-employed business owners and landlords will be using to report their earnings and pay income tax.

It was due to start from April 2023, but the government has just confirmed it will be delayed a further year until April 2024. After this date, all sole traders, partnerships and landlords with a total business or property income above £10,000 per year will have to comply with MTD for ITSA from their first accounting period.

MTD for ITSA rules explained 

From 6th April 2024, all affected business owners and landlords will need to comply with MTD by doing the following:

  • Registering for MTD for ITSA on the HMRC website;
  • Completely switching from paper to digital business records only;
  • Using MTD-compatible accounting software for their accounts e.g., FreeAgent, Xero, QuickBooks;
  • Submitting quarterly business income and expenses updates to HMRC through their software;
  • Finalising the business’s income in a declaration which confirms that the updates sent are correct, and make any accounting adjustments;
  • Submitting the final declaration to HMRC. This will replace the annual self-assessment tax return.

How often will affected businesses and individuals have to send digital updates? 

One of the biggest changes coming with MTD for ITSA is the need to submit more frequent updates. Instead of sending a self-assessment tax return to HMRC once a year, business owners and landlords will submit a quarterly summary update of their income and expenditure, with a final declaration at the end of the year. It will operate like the current VAT regime.

What are quarterly summaries? 

Quarterly summaries are reports confirming income and expenses for each self-employment and property business. The timing of when quarterly updates are submitted depends on the business’s accounting period. For example, if accounting periods match the tax year, the four quarters will be:

  • 6th April to 5th July
  • 6th July to 5th October
  • 6th October to 5th January
  • 6th January to 5th April.

One of the benefits of submitting quarterly updates is that they give business owners and landlords more information about how much tax they owe on an ongoing basis.

What is the final declaration?

At the end of every year, business owners and landlords will need to use their accounting software to finalise their overall tax position. They will have to add any relevant details about personal income and tax reliefs and include an End of Period Statement (EOPS). The final declaration replaces the self-assessment tax return, although the deadline for submission will continue to 31 January.

If you have questions about the transition to MTD or would like help with bookkeeping, contact us via partners@rjp.co.uk.

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