Making tax digital for income tax self assessment (MTD ITSA) will replace the self assessment tax return for unincorporated businesses from April 2024 for sole traders and from April 2025 for most partnerships.
The MTD ITSA regulations will require you to keep records of your business transactions in a digital format and use those records to send a summary of income and expenses to HMRC each quarter. You will also have to submit an end of period statement (EOPS) after the tax year end and a finalisation statement reporting all other non-business income. These reports will have to be submitted using MTD-compatible software. We can help you with those tasks.
The Government has decided that all unincorporated businesses will need to report profits or losses for periods that align with the tax year: 6 April to 5 April. Business that currently draw up accounts to a different date may have to submit estimated figures in their EOPS. Accounting periods ending between 31 March and 5 April will be treated as ending on 5 April.
If your business uses an accounting period that does not end on 5 April we need to talk about what 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.
All this will take some planning, so it’s a good idea to talk to an accountant soon.