MTD – preparation is the key to successful implementation

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ACCA will be joining Xero and ATT on 23 August on AccountingWeb’s live MTD Bootcamp to dissect the latest MTD for ITSA guidance.

Members can register to listen for the tips to follow in readiness along with latest updates.

From April 2024, Making Tax Digital (MTD) for income tax will apply to relevant persons (unincorporated businesses and landlords) with business and/or property income over £10,000.

The Income Tax (Digital Requirements) Regulations 2021 (SI 2021 No 1076) set out the requirements that relevant persons must comply with under MTD for income tax. These include the use of MTD-compatible software to keep and preserve their business records (business income and expenses) digitally, send quarterly updates of their records to HMRC, and submit an end of period statement to HMRC.

Members participated in and provided feedback to HMRC consultation for draft tertiary legislation notices in July 2022; we have to wait to see the outcome from that consultation. These notices provide additional information regarding:

  • the use of functional compatible software
  • digital records
  • the information required when submitting a quarterly update or end of period statement
  • retail sales elections.

A full guidance similar to VAT notice 722 is expected to be issued in due course to provide how MTD for ITSA will work in practice, including how accounting and tax adjustments should be made.

Digital records (as defined in Regulation 6)

The information that needs to be captured digitally is similar to the VAT rules in providing only a requirement for brief data items as follows:

  • the amounts of the transactions
  • the dates of the transactions, according to the basis used by the relevant person for recording transactions for the purposes of income tax
  • the categories of transactions into which the transactions fall, to the extent those categories are specified.

In respect of the retail sales of the business of a retailer, if a relevant person so elects under regulation 15(2) in respect of a tax year, digital records are such records of a transaction as may be specified in a retail sales notice.

VAT notice 700/22 includes that where a business has functional compatible software that scans the invoices received and puts the information in its ledger, if the image is retained and contains all the detail required for VAT purposes, the business does not need to keep the original invoice, unless it’s required for another purpose.

HMRC has confirmed that businesses with annual turnover below the VAT registration threshold of £85,000 will be able to submit a simplified quarterly update comprising only two figures, ie total income and total expenses. Landlords will have to separately report their finance costs in order to claim the 20% tax reducer on those costs.

Visit ACCA's technical pages at the Making Tax Digital Hub for related guidance and updates.