Keep Your Eyes Out and Ears Open for the New “Making Tax Digital”!

Two years may sound like eons away when it comes to your business. However, with fundamental changes to the administration of the UK tax system coming down the pipe, business owners should take every opportunity to start getting apprised of what Making Tax Digital for Income Tax (MTD for ITSA) will mean for them and their companies.

What is Making Tax Digital for Income Tax?

Beginning April 2024, all self employed businesses and landlords with business and/or property income of at least £10,000 will be required to:

1. Use software or a spreadsheet to keep their accounting records, and 
2. Submit their accounts digitally using MTD compatible software (i.e. paper records will no longer be accepted). 

MTD will be introduced using a phased approach with:

• General partnerships joining MTD in the tax year beginning April 2025, and
• Companies will be joining in April 2026 (further amendments to these guidelines may be forthcoming).

 

What Can You Expect from the New MTD Procedures?

Some of the new mandates will be:

• A requirement to submit updates to HMRC each quarter directly from accounting software, within one month of the end of each quarter

• Once a quarterly summary has been submitted, the system will estimate the amount of tax due so that taxpayers can more effectively plan for their upcoming tax bill

• A new ‘End of Period’ statement (EOPS) will be introduced which business owners can use to submit any tax and accounting adjustments (e.g. a claim for capital allowances). The EOP will finalise the tax position of the trade or business

• While this final ‘return’ will have the same submission and payment date as we have now (31 January following the relevant tax year), a key difference will be that HMRC intends to pre-populate some of the return figures e.g. bank interest, income from employment, pensions, etc.

Why Should Business-Owners Keep MTD on Their Radar?

April 2024 may seem a long way off but preparation will be key. This is particularly the case as penalties will be applied for any late submissions (or non-submission) of the newly required quarterly updates.

Watch This Space!

Further guidance will apparently be published later in the year explaining how HMRC intends MTD for ITSA to work in practice, including how accounting and tax adjustments should be made.

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