Self-employed businesses and landlords with annual business or property income above £10,000 will need to follow the rules for Making Tax Digital (MTD) for Income Tax from 6 April 2024 and submit digital tax filing,
Some businesses and agents are already keeping digital records and providing updates to HMRC as part of a live pilot to test and develop the Making Tax Digital service for Income Tax.
From 6 April 2024, those affected must use MTD-compliant digital software to submit quarterly summaries of their business’s income and expenses via digital tax filing.
As this deadline is fast approaching we are starting preparations now.
GENERAL IMPACT OF MTD
Much more work is going to be required to assist our clients with MTD which includes digital tax filing.
In addition Tax will become very deadline oriented throughout the year and so we anticipate two main impacts :
- The administrative burdens will now become very high for us in reminding about deadlines and chasing information.
- Our clients will need considerable additional assistance with the process itself and onboarding software etc.
Preparation for this will need to start in early 2023 at the latest as everyone will need to have a process in place well before the new deadlines begin in April 2024.
NEW DEADLINES FOR SUBMISSION OF RETURNS UNDER MTD.
The quarterly deadlines for most unincorporated businesses filing under MTD for ITSA will be on or before:
- 5 August (for period 6 April – 5 July)
- 5 November (for period 6 July – 5 October)
- 5 February (for period 6 October – 5 January)
- 5 May (for period 6 January – 5 April).
It is anticipated that unincorporated businesses will receive a tax estimate from HMRC based on the details provided in the quarterly summaries. This should provide a more real-time picture of a business’s tax liability.
The 31 January income tax payment deadline will remain in place, and this will also be the deadline to send an end-of-period statement following the relevant tax year.
So in effect 5 Returns may be required in place of one.
To align with the introduction of MTD for Income Tax in 2024, reformed penalties are being introduced for Income Tax taxpayers required to use MTD in the tax year beginning in April 2024.
The key difference between the year-end declaration and a tax return, other than in name, appears to be that HMRC will pre-populate some of the return figures e.g. bank interest, income from employment, pensions, etc.
For the self-employed, it is assumed that HMRC might attempt to pre-populate the year-end declaration with data submitted in the quarterly return figures. This is unlikely just yet, as is already the case with VAT, a business will still need to reconcile their quarterly returns to their year-end accounts and so all must reconcile to the end of year declaration. All taxpayers will need to check that pre-populated data are correct.
There are quite a few questions still to be resolved by The Revenue, but at this stage they are determined that it starts in April 2024.
You may also have to invest in Software to meet Government requirements.
The software these businesses use must be MTD enabled, and capable of receiving information from HMRC digitally via HMRC’s Application Programming Interface (API) platform.
More information can be found at Making Tax Digital (MTD) – Customer Costs and Benefits for the Next Phases of MTD where the impacts, costs and benefits to businesses and individuals of the next phases of MTD expansion (ITSA and VAT) together, set out in further detail
Government guidance: Extension of Making Tax Digital for Income Tax Self-Assessment to Businesses and Landlords – GOV.UK (www.gov.uk)
Under MTD, businesses must keep digital records and use third-party software to submit their tax returns to HM Revenue and Customs (HMRC).
Under the changes, those mandated to use MTD ITSA will need to keep records of their income and expenditure digitally and send a quarterly summary of income and expenses, and an end of year report, using MTD compatible software (or applications).
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