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.
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.
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:
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.
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.
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.
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