There are changes coming to the way you will submit information to HMRC in the future.

Making Tax Digital for Income Tax is on its way!

Chris Downing, Director of Inspire, the business and tax advisers, explains more in our Q&A.

What is Making Tax Digital?

Making Tax Digital (MTD) is a key part of the government’s plans, which they state, aim ‘to make it easier for individuals and businesses to get their tax right and keep on top of their affairs’. Ultimately it involves reporting information to HMRC in a specific electronic format.

The process of HMRC moving towards a digital tax administration system should simplify the processes of tax administration, however, as with any transformational change, it does mean that you may need to change the way that you report and submit your records in the future.

What’s already happened with MTD?

Although MTD for Income Tax is the next step on the MTD journey, it’s worth bearing in mind, that other MTD integrations have already taken place successfully.  Since April 2019, all VAT-registered businesses with an annual turnover of more than £85,000 have been required to submit digital VAT returns, using compatible software.

According to HMRC, there have been over 1.5m sign-ups for MTD for VAT and more than 8m VAT returns have been submitted digitally.

What’s happening next?

Making Tax Digital for Income Tax means that unincorporated businesses and landlords with annual business or property income above £10,000 will need to follow the rules for MTD for Income Tax from their next accounting period starting on or after 6 April 2023.

You will need to keep digital records to send Income Tax updates to HMRC.  The main change is that these updates will need to be submitted quarterly – for each update you will need to submit a summary of your business income from self-employment, or income from a property business.

A final return will need to be submitted after the tax year to conclude the income for the individual for the year.

The government is considering a change to how sole traders and partnerships are taxed, whereby everyone will be taxed to 5 April, instead of the current year basis we currently have in place, which depends on the year-end you have.  However, this was only recently announced by the government and hasn’t yet been confirmed in law, so no fixed timelines have been released.

Do I need to invest in new software?

Not necessarily.  HMRC is currently working with software providers to hopefully offer a free product for individuals with the simplest tax affairs.

What do I need to do now?

Don’t panic! It may sound like an awful lot of change, but there’s plenty of time to prepare and get everything in place before April 2023.

Think about how you can start to keep digital records, if you don’t already – even if this is just keeping a spreadsheet of income.

If you’d like to find out more about MTD, you can listen to our latest 2 + 2 podcast episode, featuring two of our MTD experts or read our advice blog.

Alternatively, contact us or call 01202 717867 and our friendly tax team will be happy to help you.