MTD for ITSA update

MTD for ITSA

Back in July 2022, HMRC launched a consultation on tertiary legislation for MTD for ITSA. The consultation period was very short.

What’s in the MTD for ITSA legislation?

The tertiary legislation provides additional information on three key requirements of MTD. These are:

• the use of functional compatible software
• the information required when submitting a quarterly update and end of period statements
• retail sales election

Functional compatible software

The legislation states that MTD compatible accounting software must comply with a particular condition. In essence, once a digital record has been entered into a software program, any transfer, recapture or modification of that record must happen digitally, not manually. These is presumably to preserve the data trail of any specific transaction.

MTD for ITSA quarterly updates

The legislation states that the information provided in quarterly MTD for ITSA updates depends upon a person’s business(es). It defines the following categories of business:

• Businesses with trade profits
• Businesses with property income
  1. UK property (not UK or EEA furnished holiday let)
  2. Overseas property (not furnished holiday let)
  3. UK furnished holiday let
  4. EEA furnished holiday let

You will need to consult the legislation for the specific details required for each category. However, each is broken down into two main types of information. First is ‘transactions that lead to business income’. This includes things like turnover, rental income, income for services provided to tenants, premiums paid for the grant of a lease etc. The second category is either ‘transactions that lead to business expenses’ or ‘transactions that lead to property expenses’. The former includes normal business expenses such as wages, cost of goods, travel expenses and so on. The latter includes property specific expenses such as rates, insurance, ground rents, repairs and so on.

A key point to note is that, if you make money from property, there are different reporting requirements. These depend on whether your property is a furnished holiday let or not, and whether it is in the UK or not. It will be easy to get the reporting wrong, so we strongly recommend using specialist landlord MTD for ITSA software. You can find out how to get this free here.

Businesses below the VAT threshold

There is some good news for businesses below the current VAT threshold. These will be able to provide simplified quarterly updates based on the ‘3 line accounts’ approach. In essence, you’ll be able to report figures for turnover, expenses and profit and loss without breaking them down into categories.

Retail sales record

If you make retail sales, you’ll need a single digital record of your daily gross takings. This must include all payments as they are received, whether by cash, cheque, card, voucher etc. The legislation also lists a variety of transactions that may be excluded when calculating daily gross takings. These include things like counterfeit notes, float discrepancies, void transactions and so on. If you are a retailer, we again recommend you read the legislation in full.

What happens next?

MTD for ITSA will apply to sole trader businesses and individuals with income over £50,000 from April 2026. It may seem like a long time away, but it’s certainly wise as a first step to make sure you are using compliant software like FreeAgent or Hammock. If you’d like more information on getting started with these, please get in touch.