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MTD for Income Tax Self-Assessment

Making Tax Digital (MTD) is being introduced for Income Tax Self-Assessment (ITSA) from 6 April 2024. Self-employed businesses and landlords with annual business or property income above £10,000 will need to follow the rules for MTD for ITSA from 6 April 2024.

MTD for ITSA was due to be introduced from April 2023 but a written ministerial statement on 23 September 2021 (see here) confirmed that it would be delayed for one year to April 2024.

General partnerships will not be required to join MTD for ITSA until the tax year beginning in April 2025. The date on which all other types of partnerships will be required to join will be confirmed later.

The regulations which set out how MTD for ITSA will work are here.

Some businesses and agents are already using software to keep their business records digitally and provide updates to HMRC on a voluntary basis as part of a live pilot to test and develop the MTD for ITSA service. To check which software packages are compatible with MTD for ITSA and find out what they do – see here. Further information on how the rules work, how to keep digital records, where to find appropriate software for sending updates to HMRC and how to sign up to the pilot is available here.

Increase of the rates of Income Tax applicable to dividend income

Who is likely to be affected

Individuals who pay tax on their dividend income.

General description of the measure

This measure increases the rates of Income Tax applicable to dividend income. Currently the ordinary rate, upper rate and additional rate are 7.5%, 32.5% and 38.1% respectively. This measure will increase each rate by 1.25% to 8.75% 33.75% and 39.35% from April 2022.

The dividend trust rate of Income Tax is currently 38.1%. This will also be increased to 39.35% from April 2022 to remain in line with the additional rate.

Policy objective

This measure supports the government’s objective of raising revenue. In England, revenue from this increase will help to fund the health and social care settlement announced in September with the Barnett formula applying in the normal way. It will also help to limit the incentive for individuals to set up a company and remunerate themselves via dividends, rather than as wages, to reduce their tax bill.

The dividend trust rate of Income Tax is being increased to ensure it remains aligned with the highest rate of Income Tax applicable to dividends as it has been since 2004.

Background to the measure

Since April 2016, the rates of Income Tax applicable to dividend income have been 7.5%, 32.5% and 38.1% for basic, higher and additional rate taxpayers respectively. Any individual who has dividend income can benefit from the dividend allowance which has been set at £2,000 since April 2018. Dividends within the allowance are not charged to tax and this will remain the case.

Detailed proposal

Operative date

This measure will apply from 6 April 2022.

Current law

The current rates of Income Tax on dividend income are outlined in Chapter 2 of Part 2 of the Income Tax Act 2007. The current rates are set out at sections 8 and 9. Section 13 determines what dividend income is charged at each rate. For these purposes, “dividend income” is defined in section 19.

Proposed revisions

Legislation will be introduced in Finance Bill 2021-22 to change sections 8 and 9 of the Income Tax Act 2007 to increase the rates of tax applicable to dividend income including the dividend trust rate. This will also have the effect of raising the rate of tax charged under section 455, Corporation Tax Act 2010 on loans to participators and on personal representatives that are liable to tax on dividends paid into estates of deceased persons under section 14 of the Income Tax Act 2007.

Summary of impacts

Exchequer impact (£m)

2021 to 2022 2022 to 2023 2023 to 2024 2024 to 2025 2025 to 2026 2026 to 2027
-15 +1340 -540 +650 +815 +905

These figures are set out in Table 5.1 of Autumn Budget 2021 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Budget 2021.

Economic impact

This measure is not expected to have any significant macroeconomic impacts. The costing accounts for multiple behavioural effects including individuals bringing some of their dividend income forward, behaviours to reduce taxable dividend income and a lower incentive for individuals to incorporate.

The terms used in this section are defined in line with the Office for Budget Responsibility’s indirect effects process. This will apply where, for example, a measure affects inflation or growth. You can request further details regarding this measure at the email address listed below.

Impact on individuals, households and families

Individuals who receive dividend income and pay tax on that income will be affected. It is estimated that this will affect 2,555,000 individuals in the year 2022 to 2023. Shares held in ISAs are not subject to dividend tax and, due to the £2,000 tax-free dividend allowance and the personal allowance, around 59% of individuals with dividend income outside of ISAs are not expected to pay any dividend tax, or be affected by this change in 2022 to 2023. The average loss of those affected is around £335.

This measure is not expected to have a material impact on family formation, stability or breakdown. Customer experience is expected to stay broadly the same because individuals will have to report their income as usual, only the liability will change. See tax on dividends for more information.

Equalities impacts

The government estimates that more men will be impacted by this measure than women with men making up 63% of the estimated affected population. Approximately 16% of the estimated affected population are over state pension age – this does not represent a disproportionate impact for the older population. It is not anticipated that any other group with protected characteristics will be disproportionately impacted.

Impact on business including civil society organisations

This measure is expected to have no impact on businesses or civil society organisations as it relates only to individuals who are shareholders.

Operational impact (£m) (HMRC or other)

HMRC will need to make changes to IT systems to deliver this change which are currently estimated to cost in the region of £530,000.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

This measure will be monitored through information collected from tax returns.

National Insurance increase from April 2022

From 6 April 2022 to 5 April 2023 National Insurance contributions will increase by 1.25 percentage points. This will be spent on the NHS, health and social care in the UK.

The increase will apply to:

  • Class 1 (paid by employees)
  • Class 4 (paid by self-employed)
  • secondary Class 1, 1A and 1B (paid by employers)

The increase will not apply if you are over the State Pension age.

If you’re employed

You pay Class 1 National Insurance contributions. The rates for most people for the 2021 to 2022 tax year are:

Your pay Class 1 National Insurance rate
£184 to £967 a week (£797 to £4,189 a month) 12%
Over £967 a week (£4,189 a month) 2%

You’ll pay less if:

Employers pay a different rate of National Insurance depending on their employees’ category letters.

How to pay

You pay National Insurance with your tax. Your employer will take it from your wages before you get paid. Your payslip will show your contributions.

If you’re a director of a limited company, you may also be your own employee and pay Class 1 National Insurance through your PAYE payroll.

If you’re self-employed

You pay Class 2 and Class 4 National Insurance, depending on your profits. Most people pay both through Self Assessment.

You may be able to pay voluntary contributions to avoid gaps in your National Insurance record if you:

If you have gaps and do not pay voluntary contributions, this may affect the benefits you can get, such as the State Pension.

If you have a specific job and you do not pay Class 2 National Insurance through Self Assessment, you need to contact HMRC to arrange a voluntary payment.

If you’re employed and self-employed

You might be an employee but also do self-employed work. In this case your employer will deduct your Class 1 National Insurance from your wages, and you may have to pay Class 2 and 4 National Insurance for your self-employed work.

How much you pay depends on your combined wages and your self-employed work. HM Revenue and Customs (HMRC) will let you know how much National Insurance is due after you’ve filed your Self Assessment tax return.

Directors, landlords and share fishermen

There are different National Insurance rules for:

You can apply to HMRC to check your National Insurance record and claim a refund if you think you’ve overpaid.

Self Assessment penalty waivers

Today HMRC has announced that they will not charge:

  1. Late filing penalties for those who file online by 28 February 2022.
  2. Late payment penalties for those who pay the tax due in full or set up a payment plan by 1 April 2022.

This will give customers and their representatives additional time if they need it and will operate in the same way as the equivalent waivers last year. However, HMRC is encouraging customers to file and pay on time if they can – almost 6.5 million have already done so.

Our Time to Pay options are still available to assist customers. Once they have filed their 2020-21 tax return, customers can set up an online payment plan to spread Self Assessment bills of up to £30,000, over and up to 12 monthly instalments.

The payment deadline for Self Assessment is 31‌‌ ‌January and interest will be charged from 1‌‌ ‌February on any amounts outstanding. Normally a 5% late payment penalty is charged on any unpaid tax that is still outstanding on 3‌‌ ‌March. This year, like last year, HMRC is giving customers more time to pay or set up a payment plan. Self Assessment customers will not be charged the 5% late payment penalty if they pay their tax or set up a payment plan by midnight on 1‌‌ April. They can pay their tax bill or set up a monthly payment plan online at GOV.UK.

There is no change to the filing or payment deadline and other obligations are not affected. This means that:

– interest will be charged on late payment. The late payment interest rate from 4 January 2022 is 2.75%;

– a return received online in February will be treated as a return received late where there is a valid reasonable excuse for the lateness. This means that:

there will be an extended enquiry window;

for returns filed after 28‌‌ ‌February the other late filing penalties (daily penalties from 3 months, 6 and 12 month penalties) will operate as usual;

a 5% late payment penalty will be charged if tax remains outstanding, and a payment plan has not been set up, by midnight on 1‌‌ ‌April 2022. Further late payment penalties will be charged at the usual 6 and 12 month points (August 2022 and February 2023 respectively) on tax outstanding where a payment plan has not been set up.

– they will not charge late filing penalties for SA700s and SA970s received in February – these returns can only be filed on paper;

– for SA800s and SA900s they will not charge a late filing penalty if customers file online by the end of February – the deadline for filing SA800s and SA900s on paper was 31‌‌ ‌October. Customers who file late on paper will be charged a late filing penalty in the normal way, they can appeal against this penalty if they have a reasonable excuse for filing their paper return late;

– self-employed customers who need to claim certain contributory benefits soon after 31‌‌ ‌January 2022, need to ensure their annual Class 2 National Insurance contributions (NICs) are paid on time – this is to make sure their claims are unaffected. Class 2 NICs are included in the 2020 to 2021 balancing payment that is due to be paid by 31‌‌ ‌January 2022. Benefit entitlements may be affected if they:

couldn’t pay their balancing payment by 31‌‌ ‌January 2022, and

have entered into a Time to Pay arrangement to pay off the balancing payment and other self assessment tax liabilities through instalments.

Affected customers should contact HMRC on 0300‌‌ ‌200‌‌ ‌3822 for help as soon as possible.

HMRC issues scam warning to Self Assessment taxpayers

HMRC is warning taxpayers completing their 2020–2021 tax return to be vigilant, as criminals are targeting unsuspecting individuals filing Self Assessment returns to steal money or personal information.

It says taxpayers should guard against malicious emails, phone calls or texts that appear to be genuine HMRC communications referring to their Self Assessment tax return.

The Revenue has received nearly 360,000 bogus tax rebate referrals, with almost 800,000 tax-related scams reported in the past 12 months.

The timing of the warning comes as HMRC is in the process of sending more than four million emails and SMS to Self Assessment taxpayers, prompting them to think about how they intend to pay their tax bill, or seek support if they are unable to pay in full, by 31 January.

Myrtle Lloyd, HMRC’s Director General for Customer Services, said: “Never let yourself be rushed. If someone contacts you saying they’re from HMRC, wanting you to urgently transfer money or give personal information, be on your guard.

“HMRC will also never ring up threatening arrest. Only criminals do that.”

She added: “Scams come in many forms. Some threaten immediate arrest for tax evasion, others offer a tax rebate. Contacts like these should set alarm bells ringing, so if you are in any doubt whether the email, phone call or text is genuine, you can check the ‘HMRC scams’ advice on GOV.UK and find out how to report them to us.”

Taxpayers can report suspicious phone calls using a form on GOV.UK. They can also forward suspicious emails claiming to be from HMRC to and texts to 60599.

HMRC is also reminding Self Assessment taxpayers to double check websites and online forms before using them to complete their 2020 to 2021 tax return.

It said: “People can be taken in by misleading websites designed to make them pay for help in submitting tax returns or charging to connect them to HMRC phone lines. Customers who are in any doubt about whether a website is genuine should visit GOV.UK for more information about Self Assessment and use the free signposted tax return forms.”

CIS: When are contractual arrangements caught?

Whether certain contractual arrangements are caught for construction industry scheme (CIS) purposes can lead to confusion and potentially non-compliance.

The question of whether or not CIS applies and who is responsible for operating CIS will be determined by:

  • Whether or not the contract is within the meaning of a construction contract; and
  • the parties to the contract.

Whilst the CIS will be in point depending on whether or not the contract falls within the meaning of a construction contract, CIS need only be operated at the point of payment.

Construction contracts

A construction contract is defined as any contract (whether written or verbal) which relates to construction operations and where one party is a contractor (FA 2004 s 59) and the other party is a subcontractor (FA 2004 s 58).

The key part of the legislation is the word ‘relates’. A contract only needs to relate to works/services that fall within the meaning of construction operations for that contract to be within CIS. This would be the case even if those works/services are not actually undertaken.

Maintenance contracts

There are various types of contracts under which maintenance services can be provide, for example facilities management contracts or planned, preventive maintenance (PPM) contracts etc.  These types of contracts can cover all manner of works, some of which might be within CIS and some outside.

As a consequence, it is vitally important to understand what types of works could be undertaken under this type of contract and having considered the position, if any part of those works would be within the meaning of construction operation, then all of the works or services provided under that contract will be within CIS.

The difficulty is that under maintenance contracts, the majority of the works might well be outside the scope of CIS. However, when carrying out those works if remedial works or making good is required then the remedial works or making good will drag the whole contract into CIS.


Generally, the installation of a domestic heating boiler would be regarded as being outside CIS on the basis that the central heating boiler is part of a system of heating. However, the installation of a new boiler may require changes to the building in which it is to be located, for example boring a new hole for the flue if the existing flue cannot be used.

The boring of a new hole through the wall and the making good of the existing hole left by the former flue, will drag the whole of the installation into the CIS. As a consequence, all of the works under that contract will be caught for CIS purposes from day one, even where a new boiler may never be installed or might be installed at some point in the future.

Private home refurbishments

There is a misconception that CIS does not apply to works carried out to private homes. As with all things CIS, this is not quite correct.

A private householder is not regarded to be a contractor for the purposes of the CIS and this only applies where the private householder has contracted for works to be undertaken to their own home and not properties that they may own and let/rent out.

As such, where a private householder has engaged a builder to carry out work to their own home, CIS does not apply. However, if that builder then subcontracts work out to other companies or tradesmen (eg bricklayers, electricians, plumbers etc), then that builder must operate CIS regardless of the fact that the works are being undertaken on a private home.

This is because the builder is a contractor and the contract between the builder and the other tradesmen will be a construction contract.

Letting agencies and maintenance contracts

Many letting agencies will provide property management services to its landlord clients. The management services can cover the collection of rents as well as ensuring the properties are maintained.

Whether or not the letting agency could be regarded a contractor for the purposes of the CIS, will depend on the contractual arrangements, which could be arranged in two ways:

  1. The landlord contracts directly with the subcontractor and the letting agency’s role might be to oversee the works to ensure the works are undertaken in accordance with the contract and may also involve making payments to the subcontractor, or
  2. Under the landlord/agency contract, the agency, as a part of its management services, also provides maintenance services and it will contract with the subcontractor for any necessary works to the landlord’s property.

Under 1), the letting agent would not be regarded a contractor for the purposes of the CIS but under 2) it could be if the letting agency meets the definition of a deemed contractor (ie its cumulative expenditure on construction operations exceeds £3m over the previous rolling 12 months). The question of whether or not the deemed contractor rules apply is also open to challenge, particularly if the landlord is regarded a contractor themselves.

Where the agency sets up a subsidiary property maintenance company, the same principles will apply. The only difference will be that the rules relating to deemed contractors will not apply to the property maintenance company and therefore it will be a contractor from day one irrespective of the level of its expenditure on construction operations.


When deciding whether CIS is in point, the starting point is establishing the contractual arrangements and what works could be undertaken or services that could be provided under that contract. If, having considered the position, the contract can be said to be within the meaning of a construction contract, then CIS must be operated on any payments made under that contract regardless of what the payment relates to.

MTD ITSA delayed to 2024

The government has delayed the start of MTD ITSA to 6 April 2024, with MTD for general partnerships postponed to 2025. The change to the tax year basis has also been delayed until at least April 2024.

In a written statement to the House of Commons on 23 September 2021, it was announced that MTD for income tax self assessment (MTD ITSA) would be postponed yet again to April 2024.

“We recognise that, as we emerge from the pandemic, it’s critical that everyone has enough time to prepare for the change, which is why we’re giving people an extra year to do so. We remain firmly committed to Making Tax Digital and building a tax system fit for the 21st Century” announced the new financial secretary Lucy Frazer.

Long time coming

This is the latest in a series of delays and deferrals in the MTD programme, which was proposed by Chancellor George Osborne in late 2015. The MTD start date for small businesses was first planned to be in April 2018, then the focus switched to MTD for VAT. The MTD for income tax programme was to be delayed until lessons had been learnt from the VAT roll-out.

MTD for VAT commenced on time for most VAT registered businesses for VAT periods starting on and after 1 April 2019 but a number of “complex” entities had a deferred start date to 1 October 2019. A similar deferral is now in place for general partnerships (ie not LLPs, mixed or corporate partnerships), with those “ordinary partnerships” due to enter MTD ITSA from April 2025.

What is the base year?

The turnover for mandation into the MTD ITSA regime remains at only £10,000 per year, much to disappointment of many who were lobbying for a much higher entry threshold.

As the turnover threshold must take into account the taxpayer’s income from all of their sole-trader businesses, plus their rental income, HMRC needs to pull together several figures from the taxpayer’s self assessment tax returns. Only when the tax return totals reach the £10,000 threshold will HMRC issue a notice to file under the MTD regulations.

If MTD ITSA was mandated from 6 April 2023, the turnover test would need to apply to the figures reported in the 2021/22 tax return, submitted by 31 January 2023, and possibly turnover reported in the 2021/22. Both of those years were affected by the pandemic which reduced turnover and rental income for many businesses and landlords.

Local authority grants for businesses liable for business rates would also increase business turnover for those periods. The SEISS grants should not have been included in business turnover, but some taxpayers have reported them as such, leading to HMRC having to make many corrections taxpayers’ self-assessments for 2020/21, and possibly also for 2021/22.

As MTD ITSA will now start in April 2024 the base year for testing the MTD turnover threshold will be the tax year 2022/23. The turnover figures for that year should not be distorted by Covid-related grants, and hopefully will reflect normal trading beyond the pandemic for most businesses.

Tax year basis

When the consultation on changing to the tax year basis of assessment was released in July 2021, doubts were raised on whether there was sufficient time to introduce such a fundamental change to tax law before the mandation of MTD ITSA.

It was apparent that HMRC wanted all unincorporated businesses to switch to the tax year basis before the introduction of MTD ITSA in 2023, but this would make 2022/23 the difficult transitional year.

For businesses with an accounting year end that doesn’t approximate to the tax year, more than 12 months of profits would be assessed in 2022/23. This would have a knock-on effect for a wide range of allowances and charges, including NIC, student loan repayments and capital allowances, to name a few. There was just not enough time to write amendments to regulations in all the areas affected before April 2022.

What’s more using the tax year basis would bring forward the start of MTD ITSA for businesses with a 31 March year end, from 1 April 2024 to 6 April 2023 – which came as a big shock for many accountants and businesses.

The written statement from the new financial secretary to the Treasury, confirmed the change to the tax year basis will not come into effect before April 2024, with a transition year no earlier than 2023. The government will respond to the consultation on reforming basis periods “in due course” but the wording of this statement makes the change to the tax year basis look uncertain.

Get ready for 12.5% VAT

Some businesses will have to deal with four rates of VAT in their accounting systems from 1 October 2021.

This has not happened since 1979 and will hopefully not happen again after 31 March 2022 when the temporary 12.5% rate for most sales made by the hospitality industry will end and the 20% rate will resume on 1 April 2022. We will then be back to three VAT rates: 0%, 5% and 20%.

Affected supplies

In a nutshell, the supplies made by the hospitality industry that have been subject to 5% VAT since July 2020 will become liable to 12.5% VAT for the period between 1 October 2021 and 31 March 2022. For most hospitality suppliers, it will be a case of just changing the VAT code from 5% to 12.5% on their software – job done.

There is no anti-forestalling legislation in place for either the rate increase on 1 October 2021 or 1 April 2022.

VAT fraction

There is an easy VAT fraction of 1/9 with the 12.5% rate. So, for example, if you pay £90 including VAT for a night’s accommodation in a hotel, and the hotelier has not itemised the VAT as a separate figure, you know that your potential input tax claim is £10.

Credit notes

If you raise a sales invoice or receive an advance payment at the 5% rate of VAT before 1 October 2021, and then it is adjusted after this date, perhaps because of an order cancellation or price adjustment, the VAT rate for the credit note will be based on the rate originally charged. This is helpfully confirmed by HMRC’s guidance: VAT Notice 700, para 18.2.5

Flat rate scheme (FRS) – new percentage rates

From 1 October, the FRS rates will increase for the following three categories:

  • Catering services including restaurants and takeaways: 4.5% will increase to 8.5%
  • Hotel or accommodation: 0% will increase to 5.5%
  • Pubs: 1% will increase to 4%

There will be a further challenge for businesses that do not complete calendar quarter VAT returns; therefore, there will be two FRS rates for VAT returns ending at the end of October or November.


A restaurant completing a VAT return for the three months to 31 October, which uses the FRS will account for 4.5% VAT on its August and September gross takings and 8.5% for receipts in October.

Rejoin the scheme?

Depending on the mix of sales between 0%, 5% and 20%, some businesses that left the FRS in July 2020, due to potential increased VAT payments, might want to rejoin on 1 October 2021 or possibly 1 April 2022. This is fine because a business can rejoin the scheme at any time if it has been out of the scheme for at least 12 months.

Adaptabe accounting systems

The 12.5% rate should be easy to deal with if accounting systems are flexible. With the UK now able to make more VAT changes post-Brexit, no longer having to comply with EU law, there might be temporary VAT rate movements in other sectors in the years ahead.

It is worth checking that VAT rates can be easily adjusted if you change your accounting system.

To quote VAT Notice 700, section 30, “When a VAT rate or liability is changed, it may have to be introduced at short notice. HMRC recommends that your accounting system – whether or not you use a computer – is designed to allow you to adjust to the change without difficulty.”

MTD ITSA: Questions answered

What are the basic requirements for MTD ITSA?

There are four requirements for MTD ITSA (draft reg 3):

  1. record business transactions in a digital manner

  2. preserve those records for the defined period

  3. provide a quarterly update to HMRC

  4. provide an end of period statement (EOPS) to HMRC

The records in 1) and 2) comprise data needed to populate the reports required for points 3) and 4), which in turn must be submitted using MTD-compatible software.

The digital means for recording the data does not have to be the same software that submits the data. However, there should be a digital link between the recording software and the submission software.

What exactly must be recorded?

Each transaction must have these data points recorded digitally:

  • the date of the transaction – the exact time is not required

  • for expenses – the category out of the specified list of expenses (see below)

  • for income – the trade or property business the income relates to

  • the amount or value.

Retail businesses will be able to elect to record daily gross takings rather than every single transaction (draft reg 17), but only if it would be unreasonable for the business to keep digital records of every individual sale.

In addition, the business will have to record the following permanent information as part of its digital records:

∙ the business name

∙ the address of the principal place of business

∙ whether it uses cash accounting or accruals accounting

Can the client give their accountant paper records to enter into software?

The taxpayer does not have to record the business data digitally themselves. They can pass this task over to a bookkeeper or to their accountant to make the entries into accounting software, or a spreadsheet.

Although the aim of MTD is to encourage businesses to record their business transactions in real-time, as they occur, there is nothing in the draft regulations that stipulates exactly when the data must be committed into the digital record. As long as the data for the quarter is recorded before the quarterly submission is compiled and sent to HMRC, there is nothing to prevent a bulk recording of transactions every few weeks or months.

However, the longer the delay between the transaction and being recorded digitally, the greater the risk of loss or corruption of data – which is the whole point of MTD (as HMRC would argue).

Can a spreadsheet be the first entry for digital records?

A spreadsheet can be the entry point for transactional data into the accounting system. However, once that data has been recorded, the MTD regulations stipulate that there should be “digital links” that move the data around the accounting system. This means the data should not be retyped or copied by human hand once it has entered the system.

Think about where the accounting system starts. That is the point the transaction (sale or purchase) is recorded. It may be convenient to capture transactions using optical character readers, or bank feeds, but that doesn’t have to be the entry point of all the data.

A business can still issue paper invoices if the information from that invoice is digitally recorded in the accounting system.

What information is required to be submitted quarterly?

The quarterly submissions will be the totals for the quarter of:

  • sales income for each trade

  • purchases/expenses for each category

The categories of expenses are expected to be the same as those currently required in the self-employment section (form SA105) and property section (form SA103F) of the self-assessment tax return. More detail will be set out in the final MTD ITSA regulations.

In essence, the quarterly submission is a rough profit and loss account, no balance sheet figures are required. The data for individual transactions are not required.

Can the accountant make changes in the final submission?

This quarterly data dump does not have to be accurate, any misallocation between expense categories can be adjusted at the end of the period statement (EOPS).

It is in the EOPS that the accountant can make any adjustments for capital allowances, losses, reliefs, disallowable expenses, transactions that have been missed or double-counted.

One EOPS will be required of each trade or property business by 31 January following the end of the tax year.

Can the taxpayer submit estimated figures on the quarterly submissions?

Yes, if the taxpayer wishes to submit estimated expense figures, or even only the income amounts, in the quarterly submissions, that would be acceptable within the current draft MTD regulations.

To avoid the risk of a penalty for late filing some form of data needs to be submitted each quarter.

The quarterly submissions do not contain an accuracy statement. The taxpayer (or accountant) is not required to declare that the quarterly submission is a complete or correct reflection of the net or gross income of the business.

The taxpayer must make a declaration of accuracy on the EOPS, once all the adjustments for the four quarters have been made.

What will HMRC do with the quarterly data?

The quarterly submission will be used by HMRC to calculate an estimate of the business’s tax liability throughout the year, and that figure will be reflected back to the taxpayer. This is likely to confuse rather than assist the taxpayer as the current timing of tax payments will not be changed (for now).

Will tax payments change to quarterly?

Earlier this year there was a Call for evidence: timely payment, which asked for ideas on how the payment of income tax under self assessment, and corporation tax for small companies, could move to more frequent payment dates based on in-year calculations.

This article is based on the very limited guidance produced so far by HMRC. The final regulations for MTD ITSA are expected to be published in October 2021.

SEISS 5 grant applications have opened

Self-employed taxpayers can now apply for the fifth SEISS grant, but they may need to provide two different turnover figures from their business as part of their application.

The portal to apply for the fifth self-employed income support scheme (SEISS) grant opened on 29 July, but not everyone can apply at once.

HMRC has contacted every self-employed taxpayer (by email or letter) who it believes may be eligible to apply for the fifth and last SEISS grant, giving them a personal start date from which they can apply. Taxpayers should not attempt to apply before their personal start date as their claim will not be processed.

This staggered start is to prevent every eligible taxpayer applying on the same day and crashing the system, and to give HMRC time to process all the grant payments due.

Taxpayers don’t have to apply for the SEISS grant on the first possible day, as the portal will remain open until 30 September 2021, but the sooner they apply, the quicker the money will arrive.

Who is eligible?

HMRC has checked basic eligibility of taxpayers in advance of opening the claims portal for them, such as whether the 2019/20 tax return was submitted by 2 March 2021.

The taxpayer must make a declaration in the application that they intend to keep trading in 2021/22. Also, that their trade profits will suffer a ‘significant reduction’ due to the impact of covid-19 in the period between 1 May 2021 and 30 September 2021.

There is no definition of “significant reduction” and HMRC is not planning to provide one.   However, the taxpayer is only required to look forward to estimate their profits in the period ending 30 September 2021. They are not required to re-examine their claim with hindsight after the event.

As long as they keep all evidence of why they believed profits have reduced (ignoring any covid-related grants received), they will be able to show that their reasonable belief at the time of application was that profits would be reduced.

If the taxpayer was eligible for the SEISS-4 grant (or earlier grants), but failed to apply on time they can still apply for the SEISS-5 grant, if they meet the other conditions.

Turnover test

To complete the grant application the most taxpayers need to submit two different turnover figures. HMRC has improved its guidance and tweaked the law set out in the HMRC Direction slightly in respect of partnerships.

New traders, who started trading in 2019/20 and didn’t have a (different) self-employed trade in any of the years 2016/17 to 2018/19, don’t need to provide a turnover figure at all, as HMRC already has a figure for 2019/20 from their tax return. These new traders will get the 80% level of the grant.

Most taxpayers will need some help from their accountant to find the required turnover figures. HMRC has created a YouTube video for tax agents to show what clients will see during the SEISS-5 grant application process, and what other information the taxpayer will need to apply.

Tax agents should not attempt to complete the SEISS grant application on behalf of clients. If a tax agent uses their client’s government gateway’s ID and password to apply for the SEISS grant this will likely result in the application being blocked.

Finding the figures

The turnover figure is gross sales for all concurrent trades, not profit. It should exclude all Covid-related grants received: SEISS, CJRS, business rates support, and ‘eat out to help out’. These figures are only used to determine which level of grant the taxpayer qualifies for (30% or 80% of average monthly profits), they do not feed into the actual calculation of the grant to be paid.

The two turnover figures required are:

  1. Pandemic period

This will be approximately the same for everyone. Irrespective of the date the accounts are drawn-up to the taxpayer must report their turnover for the 12 months ending between 31 March and 5 April 2021, eg 12 months from 1 April 2020 to 31 March 2021

2.Reference period

This is the turnover for the accounts reported on the 2019/20 tax return or the 2018/19 return if 2019/20 was unusual. Unless the taxpayer uses an accounting period ending between 31 March and 5 April, it will not cover the same months as correspond to the turnover reported for the pandemic period.


Jane draws up accounts for her self-employed business to 30 September each year. She will report turnover for the following periods as part of her application for SEISS-5 grant:

  1. Pandemic: 1 April 2020 to 31 March 2021, excluding SEISS grants 1, 2 and 3 received in that year.
  2. Reference: 1 October 2018 to 30 September 2019, as reported on her 2019/20 tax return.

Partnership tweaks

It is the partnership turnover as a whole that HMRC wants to compare for the pandemic to reference period, which is why a partner is required to report the turnover for the whole partnership business.

Only where the individual partner also has another concurrent self-employed business (sole-trader or another partnership) in 2019/20 should he report just his share of the partnership turnover.

What will the taxpayer get?

If the comparison of figures from reference period to pandemic period shows that turnover has decreased by 30% or more, HMRC will calculate the SEISS grant based on 80% of the taxpayer’s average monthly profits for three months capped at £7,500.

If the turnover between the reference and pandemic periods has decreased by less than 30%, the taxpayer will get a SEISS grant calculated at 30% of average monthly profits for three months capped at £2,850.

Where turnover has not fallen at all no SEISS grant is payable. It is thus important to enter the correct turnover figures relating to the pandemic period and reference period  in the right places in the application (see HMRC YouTube video).