What is MTD for Income Tax?

Making Tax Digital (MTD) is a government initiative designed to digitalise taxes in the UK. According to the HMRC, avoidable mistakes cost the Exchequer £8.5bn between 2018 and 2019 and digitalisation will mean that taxpayers will find it easier to get their tax right.

The essential elements and timeline for MTD were explained in our previous article which can be found here https://chw-accounting.co.uk/news-and-blog/making-tax-digital-timescale-and-the-end-of-the-soft-landing-period/

Here we look at the implications of MTD for Income Tax.

When does MTD for Income Tax being introduced?

From April 2023, MTD for income tax will be mandatory for some self-employed and partnership businesses and for some income tax payers with income from property.

How does MTD for Income Tax affect sole traders and landlords?

Sole traders and landlords with income above £10,000 will be required to use compatible software to keep digital records and send HMRC updates for their Income Tax.

This means the end of the free HMRC tax return submission tool – instead, you’ll need to choose an HMRC-recognised platform that’s compatible with MTD for Income Tax.

If you are not already doing so, in order to comply with HMRC’s MTD requirements, you will need to:

  • Maintain digital records, using compatible software, as required by HMRC’s guidelines
  • Submit digital and accurate records to HMRC, on a quarterly basis (quarterly updates)
  • Submit your final declaration

What are quarterly updates?

At least every three months, you’ll need to send HMRC a statement of your business income and expenses. The same is true for any property income that you earn. This allows HMRC to present you with a more up-to-date forecast on how much tax you will owe.

What are end-of-period statements and the final declaration?

End-of-period statements, made at the end of your accounting period or tax year, will involve a similar process to the current one for Self-Assessment tax returns.

Your final declaration is where you confirm that the figures submitted to HMRC are final and correct. This submission will then be used as the basis to calculate any tax you need to pay.

Should I prepare for MTD for Income Tax now?

While sole traders and landlords have until 2023 before MTD for Income Tax comes into effect, if you leave it too late to sign up for approved software, 2023 could be a stressful year.

We recommend that if you are not already maintaining your records digitally through an HMRC approved cloud accounting solution, you need to update your record keeping processes, so you are MTD ready and to avoid HMRC’s penalties.

Significant changes are coming in April 2023 – your record keeping and how often you report to HMRC may need to change. This is arguably the biggest change to how tax payers report to HMRC since the introduction of self-assessment.  It is going to require you to file quarterly, as well as maintain your records digitally. April 2023 is not far away, prepare now to make sure you are MTD ready.

If you need our help in this area please get in touch at hello@chw-accounting.co.uk


This article is for general guidance only. It provides an outline, and may not include points which are important to your situation. You should not depend on this blog without taking advice based on the full facts of your case. The information given was correct at the time of publication.

DID YOU FIND THIS USEFUL?

Share it with your network:  

Want more great content?
Sign up to our newsletter

    Follow us

    Tweets by @CHW-accounting

    CHW-Accounting
    @chw-accounting


    Twitter: chw_accounting

    WHAT'S THE NEWS?

    Grab a biscuit and a brew and read our latest news.

    19 February 2024

    Tax changes – What’s new in 2024?

    by

    We are now well and truly into 2024 and before you know it the end of the 2023/24 tax year on 5 April will be upon…


    Read more >

    12 February 2024

    National minimum wage – a quick guide to the...

    by

    The government sets a national minimum wage and a national living wage to guarantee that workers get a minimum standard of pay. It is a legal…


    Read more >

    7 February 2024

    HMRC to target undeclared dividend payments

    by

    HMRC have advised the Chartered Institute of Taxation (CIOT) that they have commenced a ‘One to Many’ letter campaign directed at taxpayers who HMRC suspect may…


    Read more >

    7 February 2024

    One week on from Self-Assessment deadline

    by

    We are now a week on from the self-assessment filing deadline of 31 January and figures show that more than double the number of taxpayers failed…


    Read more >

    5 January 2024

    Cut to National Insurance from 6th January 2024

    by

    From Saturday 6 January, the average earner will be almost £450 a year better off according to the government.  However, the reality is that due to…


    Read more >

    YOUR CHALLENGES

    No matter what your challenge is, we’ve probably dealt with it before.



    Need an Accountant?

    Get in touch >


    Need an Accountant?

    Get in touch >


    Tax issues?

    Find out more >


    Tax issues?

    Find out more >


    Trying to grow your business?

    We can help >


    Trying to grow your business?

    We can help >


    Managing cashflow?

    We can help >


    Managing cashflow?

    We can help >


    Starting a business?

    We can help >


    Starting a business?

    We can help >


    Looking for funding?

    Need help with funding? >


    Looking for funding?

    Need help with funding? >


    Buying or selling a business?

    We can help >


    Buying or selling a business?

    We can help >


    Adopt the cloud?

    We can help >


    Adopt the cloud?

    We can help >


    What else can we do for you?

    We can help >


    What else can we do for you?

    We can help >
    CONTACT US

    Get in touch, no hard sell, just a brew, a biscuit and a chat.