The Government is calling for evidence on income tax self-assessment (ITSA) registration to find out whether bringing forward the point when newly self-employed individuals and landlords are required to identify themselves to HMRC would help encourage them to keep on top of their tax affairs.
ITSA is a system HMRC uses to collect Income Tax, Class 2 and 4 National Insurance and Capital Gains Tax, where tax has not been deducted automatically from wages, pensions and savings. it is also used by individuals who need to claim a tax relief or allowance and companies making claims outside their company tax returns.
The aim is to understand whether:
Bringing forward the point at which taxpayers are required to identify themselves to HMRC will help taxpayers stay on top of their tax affairs;
Changes could help create a more efficient tax system which gives taxpayers clarity on their obligations;
Earlier registration could lead to earlier entitlement to additional benefits;
The benefits of Making Tax Digital could be accessed sooner.
In July 2020, the Government published a 10 year strategy to build a trusted, modern tax administration system. the strategy signposted a range of reforms the government will consider, including how taxpayers are identified and registered by HMRC. HMRC Is now keen to engage with respondents to explore the case for reforming registration for the self-employed and landlords in more detail.
HMRC is welcoming responses from any individual, business or representative with views on how and when individuals should register for Income Tax Self Assessment and start to interact with the tax system.
For many self-employed tax payers, registering for ITSA also opens the door to important additional benefits, such as paying Class 2 National Insurance Contributions to build entitlement to a state pension, accessing tax free childcare or the construction industry scheme.
Earlier registration could, for example, mean the newly self-employed and landlord population could access the benefits of Making Tax Digital (MTD) sooner.
Taxpayers notify HMRC of liability through the process of “registering” for ITSA. Taxpayers are advised to use the Online Tax Registration Service (OTRS) using different forms depending on whether individuals are registering self-employment or not.
Registering self-employment for Class 2 National Insurance contributions (NICs) and notifying liability are two separate things that are done together when registering for ITSA. Class 2 NICs provide entitlement to certain contributory benefits, including state pension.
Therefore, individuals who do not have to pay tax, for example because they are below the income tax threshold, may register for ITSA to pay Class 2 NICs.
Making Tax Digital for ITSA
From April 2024 Making Tax Digital (MTD) for ITSA will require existing self-employed taxpayers and landlords with qualifying income greater than £10,000 to keep their records digitally an submit their data using MTD - compatible software.
Businesses that start after 6 April 2023 an submit a return with a qualifying income in excess of £10,000 will need to start using MTD for ITSA from the beginning of the next tax year. Instead of an annual Income Tax return, businesses and landlords will send HMRC quarterly updates of their income and expenditure, before finalising their business income after the end of the tax year.
When taxpayers notify liability and register for ITSA they can prepare for upcoming MTD requirements or choose to join MTD early from the commencement of their business.