Making Tax Digital (MTD) is part of HMRC’s drive to digitise the UK tax system. Initially introduced in 2019 for VAT registered businesses, HMRC intends to roll out the MTD platform to individual taxpayers in what is called ‘Making Tax Digital for Income Tax’. The Government website provides a further breakdown into MTD.
What is MTD?
MTD currently requires VAT registered businesses to file their VAT returns using MTD compatible software. This software must digitally link from their accounting software (or spreadsheets) to HMRC’s MTD for VAT digital platform. Such businesses are no longer able to copy and paste figures into their online VAT return, or indeed file paper VAT returns.
Further details about MTD for VAT and how we can help your business can be found on our MTD services page.
However, HMRC plan to make MTD mandatory to file income tax returns, with the proposed effective date starting from April 2024. This had initially been set for April 2023 but was put back 12 months due to concerns raised by various professional bodies and business lobbying groups.
Who is ‘caught’ under the MTD for Income Tax rules?
Whilst we still await the final details for MTD for Income Tax (MTD ITSA) to be published, the new rules look set to incorporate the following people who have an annual income of £10,000 and above:
- unincorporated self-employed businesses and partnerships, and/or;
- residential landlords who receive income from property.
Partnerships who have corporate partners or are Limited Partnerships or Limited liability Partnerships, will not be required to join MTD ITSA at the start of the process but are expected to have to join at a later date.
Changes to filing the income tax returns
At the moment, those filing Self Assessment income tax returns file one return per year, with a filing and payment deadline of 31 January, although you can make a payment on account by 31 July.
Under MTD ITSA, those who are mandated to file digital income tax returns will have to do so on a quarterly basis, as well as making a fifth submission, called the end of period statement (EOPS).
You will still be able to pay your tax bill by 31 January and make payments on account by 31 July, if you want to.
Watch this space!
As mentioned earlier, we are still waiting to have the final regulations for MTD ITSA confirmed by HMRC, but it is likely that the points covered above will be implemented. Whilst 2024 may seem like a long way off, individuals who are likely to be affected by these new changes are urged to start the process sooner rather than later, including identifying what software they will need to use to ensure they are MTD compliant.
If you are concerned about these new changes and the effect they could have on your income reporting and tax return filing, do get in touch.