Making Tax Digital for income tax is an initiative being brought in by HMRC to make the self-employed (partnerships included) & landlords report their income on a quarterly basis. Those affected will need to keep digital records from 1st April 2024 – essentially using bookkeeping software.
Currently, there is no change to the tax payment system which will remain as 31st January & 31st July.
Who is affected?
The following groups will need to maintain digital records –
- All individuals who have self-employed income over £10,000. This is sales, not profit (basically the vast majority of you)
- Partners in a partnership with more than £10,000 of income in the partnership.
- Landlords with more than £10,000 in rental income (it’s been suggested by the Office for Tax Simplification that this limit is raised – taking more people out of it)
Why is it happening?
HMRC are looking to improve the government’s tax take.
Their view is that by keeping digital records, there is less chance of error – which they think is currently reducing tax being collected. BReportingquarterly, however, could mean that less tax is collected as taxpayers are less likely to lose receipts and thus claim more in expenses.
When is it happening?
From 1st April 2024.
It will be on a quarterly basis, on calendar quarters ending March, June, September & December. There will be a one-month deadline to file the return.
Penalties aren’t being introduced for the first year, however, there will be a points-based system so multiple late submissions will incur them. We will send more about this when they publish it.
What are we doing about it?
We’re currently looking for the easiest and best solution for you – we will be going with apps that will speak to one another. We are looking to streamline the process as much as possible.
Is there anything I can do now?
Yes, if you don’t already, please get a business bank account. This is to help reduce the transactions which need to be sorted on a quarterly basis. There are multiple free or cheap options out there –
Once you have it, keep it solely for business.
We would recommend you get used to paying your personal expenses from your personal account and business from your business. This way when we come to start processing the transactions, we will have far fewer transactions and will be able to keep your fees lower.
Extra work
Whilst it may feel like an extra task or thing to be getting on with, there are huge benefits to going digital –
- Less paper – it’s all stored in apps.
- Quicker quotes/invoices to customers
- Knowing where your business is actually at – you’ll have quarterly reports you can look into
- Which, in our opinion, gives you the opportunity to make more money.
Most of our VAT customers file under MTD – and have for a number of years – and it helps us to get figures for them on a regular basis or when they need them.
Next Steps
If you’re unsure of what this means for you and your business, get in touch now and we’ll give you specific advice.