There has been a lot of talk about Making Tax Digital (MTD) in recent years including a false start scheduled for April 2023.
Initially MTD only applied to VAT registered businesses but from 6 April 2024 MTD for Income Tax will apply to anyone who is:
- Self Employed, or
- a Landlord
with combined income over £10,000. This therefore applies to anyone letting property, not just those in business. Separate rules will apply to partnerships and companies at a later date.
“This is the most significant change to the tax system since the introduction of self-assessment in the 1990s, particularly for small businesses who until now have been exempt from the first stage of MTD.
Matthew Chapman, Chapman Worth
“For most people that currently submit a tax return, MTD will mark the end of the current annual tax return and the introduction of quarterly returns. And this will obviously come as a shock to a lot of people who just don’t have a system in place to record their income in a digital format or to submit it to HMRC on a timely basis every three months” explains GCA accountant Matthew Chapman of Chapman Worth.
What exactly are the requirements?
The first requirement is to start using dedicated accounting software to record income and expenditure such as Xero or Quick Books.
The other, possibly more daunting requirement is that a return must be submitted to HMRC every three months, and the deadline is only one month after the end of the quarter. The software will make this a very simple process, but it does mean that taxpayers need to keep on top of their bookkeeping.
A further ‘final’ return is required by 31 January following the end of the tax year. This is the same deadline as for existing tax returns and this return will be like submitting a ‘fifth’ quarter to adjust anything that needs adjusting from the previous four quarters.
At present the 31 January deadline is also the deadline for the final tax payment, as it is now but the introduction of quarterly returns will assist in the collection of tax on a quarterly basis one day if the government decide to pursue that policy.
What if my business doesn’t have a 5th April year end?
Alongside the introduction of MTD, all businesses are also required to change their accounting year end to coincide with the tax year of 5th April (or 31st March) which will also then coincide with the MTD quarters. This must be completed by 5 April 2025 and some businesses are making this change immediately, but be careful to ensure this is done efficiently. In many cases it could accelerate or increase tax liabilities so transitional rules do apply.
Further advice
It is possible to adopt MTD early, but Matthew Chapman says “We don’t necessarily recommend being a guineapig. We do however recommend the use of Xero straight away so that by 6 April 2024 you hit the ground running”.
Visit gov.uk/extension of MTD for further details
Speak to your accountant if you need further advice.