How Different is ITSA MTD From VAT MTD? A Detailed Guide
The UK government has been clear that it wants to make the tax system more digital and efficient. One of the key ways it plans to do this is through Making Tax Digital (MTD).
MTD is a major initiative that will require businesses and individuals to keep digital records of their income and expenditure, and to submit these to HMRC using compatible software.
The government has already introduced MTD for VAT, and while this has been challenging for some businesses, it is generally seen as a success.
However, MTD for Income Tax Self-Assessment (ITSA) is a very different beast. It is a much more complex system, and it is going to be much more difficult to implement.
In this article, we will take a look at why MTD for ITSA is going to be much more difficult than MTD for VAT, and we will also provide a comprehensive guide to what you need to do to get ready for the changes.
So, let's get started!
What's the difference between VAT MTD & ITSA MTD?
VAT MTD is a very simple system. You submit your VAT returns to HMRC through the Making Tax Digital for VAT service, and that's it.
In contrast, ITSA MTD is a much more complex system. You will need to submit your Self-Assessment returns to HMRC through the Making Tax Digital for Self-Assessment service, and you will also need to submit your Self-Assessment payments to HMRC through the Making Tax Digital for Self-Assessment Payments service.
In addition, you will need to keep your records in a digital format and use software that is compatible with the Making Tax Digital for Self-Assessment service.
Why is ITSA MTD more difficult?
There are several reasons why ITSA MTD is more difficult than VAT MTD.
First, the Self-Assessment system is much more complex than the VAT system. There are many more forms to complete, and the rules are much more complicated.
Second, the Self-Assessment system is much more reliant on paper records. This is because the Self-Assessment system is designed to be completed by individuals, rather than businesses.
As a result, there are many more paper records that need to be converted into digital format.
Third, there are many more software packages that need to be compatible with the Making Tax Digital for Self-Assessment service. This is because there are many more businesses that need to comply with the Self-Assessment system.
Fourth, there are many more deadlines that need to be met. This is because the Self-Assessment system is designed to be completed on an annual basis, rather than on a quarterly basis.
Finally, the Self-Assessment system is much more reliant on HMRC's systems. This is because the Self-Assessment system is designed to be completed by individuals, rather than businesses.
What Does This Mean for You?
If you are currently using accounting software that is not designed for ITSA MTD, then you will need to find new software that is compatible with the requirements of ITSA MTD. This could be a significant cost for your business, and it could also mean that you need to invest in training for your staff. In addition, you will need to make sure that your software is always up to date. This is because HMRC may make changes to the way in which the information is reported, and your software will need to be able to cope with these changes.
Conclusion
It is clear that the Making Tax Digital for Income Tax Self-Assessment in the UK is going to be much more difficult than VAT MTD. The main reason for this is that there are a lot more tax rules and regulations that need to be followed for income tax self-assessment, which means that businesses will need to invest more time and resources into ensuring compliance. In addition, the government has said that it will be making changes to the tax system on an ongoing basis, which means that businesses will need to be prepared for constant change.
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