MTD ITSA double-entry requirements for sole traders from 6/4/2024

Ajax67

Hi. I am a self-employed residential window cleaner and I do accounting on my own. And I am not 100 per cent sure if I fully understand all the mandatory MTD ITSA requirements that I may have to meet, along with the overwhelming majority of all other UK sole traders, from 6/4/2024 already.

My understanding is that under the MTD ITSA rules, I will have to submit all my daily sales and all my strictly individual expenditure transactions to the HMRC on a quarterly basis.

But I am not quite sure if I will have to make any other changes in my double-entry system. Namely, I would like to know whether I will have to make strictly individual entries also for each and every transaction that doesn't have any direct impact (or any impact at all) on my P&L Statement. It would apply, last but not least, to various drawings, cash or cheque deposits into the bank, bank payments from my credit customers, bank (debit card) payments to my debit card suppliers etc.

Does anyone know whether also such sort of transactions will need to be accounted for strictly individually in the double-entry system, or whether only their "petty cash like" monthly or quarterly sums (e.g. monthly or quarterly sum of bank payments from my credit customers, monthly or quarterly sum of bank payments to my debit card suppliers etc.) will still do under the MTD ITSA rules?

Thank you!

Jeremy535897

You would be best doing the following:

• separating your business and private transactions. You should really have a business bank account as well as a private one. That then means you are not recording every non-business transaction
• using MTD compliant accountancy software, and linking your business bank account to it. That way you will be able to keep the detailed records required without difficulty

Ajax67

Thank you, Jeremy535897. I do certainly separate my business and private transactions and I do have a separate bank account solely for my business purposes.

However, I would like to know, whether I will be allowed, under the MTD ITSA, and for the purposes of my double-entry system, to sum up on a monthly or quarterly basis the transactions of those kinds that won't need to be reported every quarter - rather than to separately itemise even each of those transactions. If I have to separately itemise all my drawings or all my bank transactions along with my daily sales and all my expenditure, it will take even more time and energy than the already onerous, minutely itemised, quarterly sales and expenditure reports. Therefore I would like to avoid it, to account for my drawings or bank transactions of various kinds only in the summary form (i.e. in the form of monthly or quarterly sums), that way saving plenty of time and energy. Does anyone know if this approach to drawings or bank transactions of various kinds will be possible under the MTD ITSA rules? Thank you!

Jeremy535897

The whole idea is to maintain digital records that lead up to the quarterly summaries. See:
https://www.gov.uk/government/consultations/tertiary-legislation-for-making-tax-digital-for-income-tax/notices-made-under-regulations-3-8-12-and-16-of-the-income-tax-digital-requirements-regulations-2021-si-2021-no-1076

You can use a spreadsheet and bridging software. See:
https://www.accountingweb.co.uk/tax/business-tax/mtd-itsa-clarifying-reporting-requirements

If you make transfers from business to private bank accounts those transfers will be part of the record keeping.

Ajax67

Thank you for your links, Jeremy535897. Anyway, your sources don't mention any transactions that have no direct impact on your sales or expenditure. And if your accounting is accrual-based, then the transactions affecting your (business) bank account don't usually have such a direct impact. Any deposits or withdrawals between your business cash and business bank or any drawings have nothing to do with your sales or expenditure at all. And any payments from your credit customers have only an indirect connection with your sales (if you don't get paid, your credit customers debit the Bad Debts Written Off account, and your sales get commensurately reduced). Or am I wrong?

Jeremy535897

You seem to be more familiar with bookkeeping than most people, so I cannot imagine MTD will make your life more complex. HMRC have already confirmed that for businesses under the VAT threshold, the quarterly updates will basically be just total income and total expenditure. For businesses above the limit, expenditure will have to be classified along the lines of the categories in the SA103F. I don't think that they are focusing on the balance sheet aspects, although if you use MTD compatible accounting software, those aspects form part of the day to day recording of transactions. You must already know who has paid you and when to manage your business.

You can find out more detail here, with the links in it:
https://www.absolutetax.co.uk/download/download/Absolute Accounting Software - New Approach MTD for ITSA Guide.pdf

Ajax67

Again, excellent resources, Jeremy535897. Many thanks once again!