Making Tax Digital for Income Tax Self Assessment
Understanding Making Tax Digital for Income Tax Self Assessment (MTD for ITSA)
Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) represents a significant shift in how millions of businesses and landlords will manage and report their taxes. The new system requires individuals with qualifying income to maintain digital records and submit quarterly updates to HMRC using compatible software. This move is designed to make tax administration more efficient and accurate, and it marks the end of the traditional paper-based self-assessment process for those who are required to participate.
Phased Introduction for Individuals
The introduction of MTD for ITSA will be rolled out in two distinct phases, based on an individual's qualifying income. This phased approach is designed to give taxpayers and software providers time to prepare for the change.
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From April 2026, MTD for ITSA will be mandatory for those with qualifying income of more than £50,000.
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From April 2027, the requirements will extend to those with qualifying income over £30,000.
This staggered timeline allows individuals to transition their record-keeping and reporting methods smoothly.
What This Means for You
Once an individual is required to join MTD for ITSA, they will no longer submit a single annual tax return. Instead, they will be responsible for sending four quarterly updates of their income and expenses to HMRC directly from their compatible software. A final declaration will still be submitted after the end of the tax year to finalize all figures. The core of this system is the use of a digital platform to manage financial records and communicate directly with HMRC, ensuring records are up-to-date and accessible.
The Future for Partnerships
While the initial focus is on individuals, the government has confirmed its commitment to introducing MTD for ITSA to partnerships in the future. Further details on the timeline and requirements for this group are expected to be announced later.
Capital Gains Tax
Key Changes to UK Capital Gains Tax (CGT) Rates
A series of significant changes have been made to the UK's Capital Gains Tax (CGT) rates, affecting various types of disposals and taxpayer categories. These adjustments are set to be introduced in phases, and it is important for individuals, trusts, and businesses to understand how these changes will impact their financial planning and tax obligations.
Main Rate Changes
The main rates of Capital Gains Tax that apply to assets other than residential property and carried interest are being adjusted. For disposals made on or after 30 October 2024, the rates will increase from their previous levels of 10% and 20% to 18% and 24% respectively.
Trustee and Personal Representative Rates
For disposals of assets by trustees and personal representatives, the Capital Gains Tax rate is also changing. From 30 October 2024, the rate that applies to these entities will increase from 20% to 24%.
Business Asset Disposal Relief and Investors' Relief
The rates for Business Asset Disposal Relief and Investors’ Relief are undergoing a phased increase. The rate will move from 10% to 14% for disposals made on or after 6 April 2025. This rate will then increase again to 18% for disposals made on or after 6 April 2026.
Residential Property and Special Provisions
It is important to note that the rates of Capital Gains Tax that apply to residential property disposals will remain unchanged at 18% and 24%.
Special provisions exist to handle transitional scenarios. This includes contracts entered into before 30 October 2024 but completed after that date for the main rate changes. There are also specific rules for contracts entered into on or after 30 October 2024 for the phased rate changes related to Business Asset Disposal Relief and Investors’ Relief. Furthermore, special provisions apply to share reorganisations and exchanges where an election is made. These detailed rules are in place to ensure a fair and clear transition between the old and new tax regimes.