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With Making Tax Digital (MTD), HMRC is rolling out the biggest change to the tax system in a generation. The scheme aims to make the UK’s tax system fully digital over the next few years. From April 2024: all unincorporated business, the self-employed and landlords with business turnover above £10,000 report under MTD for ITSA. MTD for Income Tax for Self-Assessment will be a new way of keeping records and reporting your income and expenses to HMRC.

What is MTD?

• Under MTD, HMRC aim to join up their internal systems and so create one account for each taxpayer for all their different taxes within HMRC.
  • Via their 'digital account' taxpayers will be able to view all their payments and offset overpayments in one tax account against underpayments in others.
  • HMRC seek to become "one of the most digitally advanced tax administrations in the world".
• MTD imposes new quarterly filing and potentially payment obligations for businesses and landlords.
• Implementation: 
  • The first phase of MTD is for VAT.
  • The second phase affects unincorporated businesses and landlords in respect of their Income Tax obligations.
  • The third phase will affect companies in respect of their Corporation Tax
• A New late filing and payment penalty system will eventually apply to quarterly returns and annual declarations.

Making Tax Digital: Survival guide (for the self-employed & landlords)

The way that some self-employed taxpayers report their business profits to HMRC is set to change under the Making Tax Digital (MTD) for business regime, when it begins to apply to Income Tax reporting.

MTD for Income Tax Self-Assessment

• Under MTD it is proposed that the Self-Assessment tax return will be replaced by five new reporting obligations made during and after the tax year. There will be quarterly updates required and a year-end final declaration.
• This measure was due to commence for accounting periods starting on or after 6 April 2023 for self-employed businesses and landlords with business turnover above £10,000. This has been delayed, along with the changes to basis periods and the new tax penalty system. The new start date is 6 April 2024 (regardless of your accounting period end date).
• Non-UK resident or domiciled individuals will have to follow MTD where they have UK self-employment and/or UK property and meet the turnover threshold.
• UK residents will have to follow MTD if they have foreign property income that meets the threshold (may be combined with other self-employment or UK property turnovers).
• Digital records of all transactions will be needed. These will form the basis of the quarterly updates.
• If you are not already using software for your record-keeping/accounting, you will need to learn how to use a spreadsheet or some type of accounting software or App which is MTD compliant.

Five tax returns per year

• Quarterly updates must be submitted to HMRC, with everyone adhering to the following quarter dates:

• An End of Period (EOP) statement must be then made for the relevant period, containing all the required information and a declaration that the information is correct and complete to the best of the taxpayer's knowledge.
• The EOP must be filed by 31 January following the relevant tax year unless later under s8 or s8A TMA 1970.

Tax payments

• The tax liability will need to be paid by 31 January of the next year (as is currently the case).
• You will be allowed to voluntarily pay your taxes as you go: the detail is still being decided.
• Eventually, it is possible that you will be required to make four payments per year on account of tax.

Penalties

• There will be no late filing penalties for at least a year while the new system beds in. After that, you will suffer penalties if you file your returns late.
• Penalties already apply for errors in returns or documents.
• Late payment interest already applies.

What information will I need?

Before you can sign up you will need compatible software (see below).

First of all, you will need your Government Gateway user ID and password (this is the one you use to file your Self-Assessment return). You will have the option to create one when you sign up, if you do not have one already.

You will then need the following information in order to sign up: business name, email address, National Insurance number, business start dates and registered address, accounting period, accounting type such as cash or standard accounting

Sign up via Gov.uk

What equipment (hardware) and software or Apps will I need?

• Your requirements depend on you, how you feel about technology and the nature of your business.
• If you use an accountant you can continue to do so.
• You can delegate all your bookkeeping and online filing to an accountant, tax adviser or bookkeeper if you feel you cannot cope with this new system.
• If you are one of the two million taxpayers who do not engage any professional help in reporting to HMRC you need to decide which system to use.
• You can choose from different available bookkeeping software for the computer, or use apps on your smart phone (accounting using a phone is not for everyone) – so best is to consult your accountant of bookkeeper.

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