Self Assessments are changing - are you ready?

Filing your annual Self Assessment can seem daunting, and with some major changes about to come into play, you need to make sure you’re ready.

But there’s no need to panic – at Cobalts we’re happy to support you. If you’re required to pay tax via Self Assessment, we’re here to help.

We’ve put together some FAQs to help you get started: 

What is Making Tax Digital for Income Tax Self Assessment (MTD for ITSA)?

Making Tax Digital for Income Tax is a new way of reporting income to HMRC. You’ll use software compatible with Making Tax Digital to keep digital records and send Income Tax updates instead of sending a Self Assessment tax return.

When will the changes take effect?

Self-employed business owners and landlords with annual income above £10,000 will need to follow the rules for Making Tax Digital for Income Tax Self Assessments from 6 April 2024.

If you meet the above criteria, you’ll need to sign up for MTD for ITSA, even if you’re already registered for Self Assessment.

How does Making Tax Digital for Income Tax Self Assessment compare?

Here’s a quick look at how these changes compare to current rules:

Why is it changing?

Making Tax Digital is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right, keep on top of their records and help make the system easier for everyone.

According to HMRC, the latest tax gap figures show that too many people find getting their taxes right difficult, with avoidable mistakes costing the Exchequer £8.5 billion in 2018 to 2019!

As well as helping the Government, it will also make it easier for business owners to manage their tax payments, instead of being surprised by one large lump sum at the end of the year.

How will the new system be different?

You’ll need the right software:

Tax payers will need to use compatible, HMRC-recognised MTD software to keep digital records and file Self Assessment returns.

You’ll no longer be able to use the online HMRC portal, or the paper (mail) filing system.

If you’re already using cloud-based software such as Xero, Quickbooks or Sage, you’re half-way there. These companies are all working on their own solutions which are due to roll out very soon.

Quarterly updates: 

Everyone who meets the requirements for Self Assessment will need to provide quarterly updates of their income and expenses for the following periods, by the following deadlines, regardless of their accounting period end:

End of Period Statement (EOPS): 

The End of Period Statement is similar to the current Self Assessment, as it should be used to make  the required tax and accounting adjustments and finalising your tax position.

The EOPS will cover the whole tax year (regardless of the accounting period of the business) and will be due for filing by the normal Self Assessment deadline of 31 January following the relevant tax year.

A separate EOPS will be required for each trade or property business carried you own.

Final declaration:

You will also need to file a Final Declaration. This is designed to bring together all business and personal information needed to determine your final tax position, including information from EOPS and information on non-MTD sources of income like dividends and interest.

Unlike the EOPS, only a single final declaration will be required for each taxpayer. This will be due by the normal Self Assessment deadline of 31 January following the relevant tax year.

How can I get support with Making Tax Digital for Income Tax Self Assessment?

While April 2024 may seem like a long way off, if you’re not ready, you could find yourself in a mess. That’s where our team at Cobalts can help.

We’re taking on new clients now, so we can get you sorted well ahead of the deadline.

Whatever the size of your business, we’d love to talk to you. Book a free consultation now.

Useful Links:

• HMRC Step-by-step guide.

• Follow us on social media for regular tips and updates.

• Xero are currently working on a suitable solution. As Xero-certified accountants, we can help get you set up.

• We’re also Quickbooks-certified – another great option for digital accounting.