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.

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