Under MTD for ITSA, individuals with qualifying income must keep digital records of business transactions and submit quarterly summaries of their income and expenses to HMRC using compatible software. The process is: 

Record business transactions digitally.

Submit quarterly updates of income and expenses.

Submit an End of Period Statement (EOPS) for each business.

Make a Final Declaration, replacing the traditional self-assessment tax return. 

The systems analysis approach for spreadsheets

The following SA process can ensure spreadsheets meet MTD for ITSA obligations:

1. Requirements analysis

Identify digital record-keeping needs: A spreadsheet system must record all necessary transaction details, including the amount, date, and tax category.

Define data flow: The system must include a “digital link” to transfer data from the spreadsheet to an MTD-compliant bridging software without manual re-typing or copy-pasting. This means using formulas and linked cells within and between spreadsheets.

Specify reporting requirements: Design the spreadsheet to produce accurate quarterly and annual reports based on HMRC’s specified tax categories.

Identify limitations: Recognize that a spreadsheet is primarily for data entry and calculation, not for automating submissions. This confirms the need for bridging software. 

2. Design and implementation

Create spreadsheet structure: Set up separate worksheets for different data types, such as income, expenses, and asset purchases. Include dedicated columns for transaction date, amount, description, and tax category.

Use functions and formulas: Implement formulas to automatically calculate quarterly and yearly totals for each tax category. Ensure that these formulas use cell references rather than static values to maintain the “digital link”.

Integrate with bridging software: Test the process of exporting or transferring data to the chosen bridging software. Ensure that the spreadsheet’s structure aligns with the software’s data import requirements.

Automate data aggregation: Create a summary sheet with formulas that pull cumulative quarterly totals from the detailed transaction logs. This is where the digital linking of cells is critical for compliance. 

3. Testing and quality assurance

Validate data accuracy: Test the spreadsheet with sample data to ensure that formulas correctly calculate totals and that the data is categorized appropriately.

Confirm digital links: Verify that totals and summaries update automatically when new data is entered. Check that data can be correctly transferred to the bridging software without manual intervention.

Review for human error: Acknowledge and mitigate the risks of manual data entry errors. As part of your SA, you must recognize this as a weak point compared to cloud accounting software, which automates much of the data entry. 

4. Operation and maintenance