Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is drawing ever nearer, and with it comes new terminology that you may want to introduce to your clients. To help you demystify the jargon and get your clients ready for the initiative, we’ve put together this handy glossary of MTD for ITSA terms. From defining an annual summary to clarifying the final declaration journey, informing your clients about MTD for ITSA and introducing them to the lingo will be a breeze.
Anyone who falls within the scope of MTD for ITSA will have to use MTD for ITSA-compatible software to keep their financial records digitally. This will include desktop software packages, cloud accounting software like FreeAgent or spreadsheets combined with specialist bridging software. To ensure that a business’s tax liabilities are compliant with the new legislation, it’s necessary to use HMRC-recognised accounting software.
Business owners can authorise someone else to deal with HMRC for them, such as an accountant, friend or relative.
Although it’s possible to sign a client up for MTD for ITSA, you will be unable to work on their account until you have been authorised to do so. Once a client is signed up for MTD for ITSA via the HMRC website, they’ll receive an authorisation email. They’ll then need to follow the link in the email and complete the authorisation steps to enable you to act on their behalf.
An annual summary is a set of summary data for a tax year and contains all of the business’s allowances and adjustments, broken down by category.
A final declaration is the process by which MTD-ready accounting software brings together all of the data a client needs to provide to HMRC to establish their tax responsibilities for a specific year. Accountants and bookkeepers may also make corrections to accounts during the final declaration process.
Most claims for reliefs and allowances and any deductions that were previously included in the business’s Self Assessment are also included in the final declaration process.
For the final declaration process to take place, the client must have provided data for their entire income. As with the existing Self Assessment tax deadlines, clients can finalise from 6th April and the deadline will be 31st January the following year.
An obligation, also known as an obligation period, is a period of time in which a client has to provide summary income and expense data for their business. Every business has multiple obligations (one every quarter) and the dates for these are set by HMRC based on the accounting period of the business.
An update period is a period of time within an obligation. An update period can vary in length from a single day to the whole obligation but cannot run across more than one obligation. Clients can submit a summarised version of their income and expense data for these update periods and this can be provided as a single update or as several small updates.
Looking for a jargon-free solution for your landlord clients? Discover how landlords can use FreeAgent to manage multiple properties, track the profitability of each property and keep an eye on their business spending without an accounting translator!