UPDATED JANUARY 2023
Since our original post, HMRC have again deferred the start date for Making Tax Digital Income Tax Self Assessment. Our original post remains intact, but the main changes announced in December 2022 are:
- The start date has been deferred to April 2026.
- Self-employed and landlords with a turnover over £50,000 joining in April 2026.
- Those with a turnover over £30,000 will join in April 2027.
- The Government will carry out a review to decide if those with a turnover below £30,000 will be mandated to join.
Every year, more than 10 million people file self-assessment tax returns, making self-employed tax returns one-third of all UK taxpayers’ contributions. MTD self-assessment, also known as Making Tax Digital, is being phased in to help both individuals and business owners manage their taxes more efficiently.
This means moving from a paper system to an online system, helping to cut down on waste and avoid errors. There are various deadlines for individuals and businesses, from Making Tax Digital for landlords to larger business corporation tax.
While the phase-out of paper processes was introduced at the 2015 Budget, it was not until 2019 that we began to see movement. Today, deadlines have been pushed back due to the coronavirus pandemic, but there is every reason to start making changes. At the time of writing, deadlines for different groups are as follows:
- MTD for ITSA (Making Tax Digital for income tax self-assessment) will now be a requirement from April 2024. This will also affect Making Tax Digital for landlords.
- MTD for small businesses that are below the £85,000 VAT threshold but have volunteered to pay VAT must have switched by April 2022.
- MTD for sole traders and landlords with a turnover of more than £10,000 but less than £85,000 will need to sign up for their first full accounting period beginning after April 2023.
- MTD for corporation tax will apply from 2026 at the earliest.
What is Making Tax Digital for Income Tax Self-Assessment (MTD ITSA)?
If you’re currently submitting self-assessments every year, you’ll soon need to make the switch to Making Tax Digital. This means moving from paper files to digital records for tax affairs.
The rules apply to businesses and landlords with an annual income of more than £10,000. Rather than using the HMRC website for tax returns, you’ll also need to use accounting software to submit your records.
MTD for ITSA
You can sign up for MTD for ITSA on the Gov.uk website here. You will need information including your:
- Trading name
- Trading start date
- Email address
- National Insurance number
- Accounting period
- Accounting type, such as cash or standard accounting.
MTD ITSA for self-assessment tax return
If you are self-employed, you will only need to sign up for MTD ITSA if your annual income is over £10,000. There are some exceptions for example, if you can prove that it’s not reasonable or practical for you to use computers or the internet to file your tax returns. (You may have issues with accessibility, for instance.)
You can check your eligibility for MTD for self-employed tax returns here.
Benefits of Making Tax Digital
There are many benefits to Making Tax Digital for landlords, sole traders and business owners alike. From cashflow to time savings, the move is set to revolutionise the way we file our tax returns.
Reduced paperwork
Filing invoices, receipts and documents can be hugely time-consuming for any business. Likewise, there is potential for human error if documents invariably get lost. You’ll also have the added benefits of a more sustainable business, reducing operating costs for supplies like paper and keeping things organised.
More time
Using digital bookkeeping software makes things quicker and simpler. All information is readily available, including tax dates, repayments owed and any impending bills. It may also enhance visibility for your business, putting all the figures in front of you and helping you plan for the future.
No complicated spreadsheets
Gone are the days when we would have to trawl through pages of spreadsheets. This time-consuming, manual process is once again prone to errors. All information and tasks are available with accounting software at the touch of a button no more complicated formulas.
Better cash flow
With bookkeeping functionality, you are able to see your income and outgoings in real-time. This helps to ensure better visibility over cash flow. There are no unexpected bills in the form of tax payments that you won’t have planned for. You’ll be aware of upcoming payment dates and be able to plan accordingly.
When does MTD ITSA start?
For self-employed and landlords, you will have a digital start date of April 6, 2024. If your business accounts don’t fall in line with the tax year (5 April), you will need to change your year end so it does. Special rules apply if you are affected by these circumstances.
How often should I update HMRC?
Making tax digital will now require an End of Period Statement (EOPS) to be submitted at the end of every quarter. You’ll also need a final declaration’ that includes any other taxable income you’ve made. You should submit this by January 31 each year similar to a self-assessment tax return.
Your compatible software can send these statements. If you’re still using spreadsheets, you can submit at the end of your accounting period.
Making Tax Digital for landlords
Landlords must use MTD-compliant software to report their taxable rental income. You must update your records before your quarterly update is submitted for that period.
You will not need a digital account for each property. The £10,000 threshold applies to the taxpayer, not the property itself. However, if you jointly own a property, then all owners must submit a return.
If you live outside of the UK, the MTD rules will only apply to UK properties from which you receive rental income, and this must be more than £10,000 per year.
When does MTD ITSA apply for landlords?
Generally, MTD ITSA applies for landlords with a taxable turnover of more than £10,000 per year. If you live in the UK but own property overseas with more than £10,000 of annual income, you may be able to claim double tax relief if your property is taxed twice.
MTD and corporation tax
Although a pilot scheme is scheduled to begin in April 2024, MTD for corporation tax is not set to come in until 2026 at the earliest. You will benefit from using an agent to file this. You can find out how much accountants cost here.
Making Tax Digital and VAT
Businesses with a taxable turnover of more than £85,000 per year must be VAT-registered. The MTD rules have applied to these businesses since April 2019, but in April 2022, all businesses under the threshold who volunteered to pay VAT became liable.
Again, you will need to submit quarterly updates using MTD compatible software. This will be easy to remember as you can time it with your VAT returns and payments.
Get tax right with UWM Accountants
The world of MTD for landlords, MTD ITSA and general self-assessment doesn’t need to be complicated. The new digital changes may take some getting used to, but will make things swifter and less error prone. While there is no legal requirement, you may need an accountant to help you with this and save the maximum amount of tax.
You can get set up with Making Tax Digital by visiting the Gov.uk website if you’ve not done so already. For everything else, speak to the experts who can help you run your business in a tax efficient manner.
