Making Tax Digital for Income Tax
Posted on 8th August 2021 at 20:42
Making Tax Digital for Income Tax is a new way of reporting earnings to HMRC. You’ll use software to keep digital records and send Income Tax updates instead of filing a Self Assessment tax return.
It is proposed that the annual Self Assessment tax return filing obligation will be replaced by FIVE new reporting obligations! There will be four quarterly updates required and a year-end final declaration.
This new reporting obligation is due to commence for periods starting on or after 6 April 2023 for self-employed businesses and landlords with turnover above £10,000.
To follow the rules for Making Tax Digital for Income Tax, you’ll need to:
• keep digital business records
• get compatible software
• sign up
• send business income and expenses updates
• finalise your business income
• submit a final declaration instead of a Self Assessment tax return
The first quarterly return under the new system will be due for the quarter ending 5 July if your reporting period is 5 April and filing deadline in August 2023. You will continue to make quarterly submissions and a final tax return will be due as usual. You must submit your final declaration and pay the tax you owe by 31 January the following tax year. Therefore, your first tax return 2022-23 under the new system will be due by 31 January 2024 and this will then be called a Final Declaration.
It is possible that HMRC will require you to make four payments per year on account of tax as part of the new reporting system.
If you are NOT already using software for your record-keeping/accounting, you will need to set up with Making Tax Digital compliant software such as FreeAgent.
Penalties: There will be soft landing for at least a year with no penalties for late filings. After that, you will suffer penalties if you file your returns late.
Software: If your turnover as a landlord and/or self-employed is at least £10,000, you need to consider set up with accounting software as early as possible. FreeAgent is Making Tax Digital compatible software for VAT and is working closely with HMRC to ensure that it will allow for the new submissions using the software.
What’s next? Making Tax Digital for Corporation Tax is expected to be the next phase in the new system. However, HMRC have indicated that MTD for Corporation Tax rules won’t come into effect until at least 2026.
For further advice, get in touch with your usual Chart Accountancy contact or email: [email protected]
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