Making Tax Digital Changes For Income Tax

With HMRC shifting many deadlines, it still looks like Making Tax Digital (MTD) will finally be here to stay.

Currently, one annual tax return is required by anyone in the income tax self-assessment regime. , This is due for submission by the 31st of January following the end of the tax year and is dependent on your own personal trading levels. However, from the 6th of April 2024, there will be significant changes to the current annual filing regime.

What are the incoming changes?

It does seem that the implementation of MTD has taken longer than expected, in terms of an further adjusted timeline:

• 2020 – the government announced that MTD for Corporation Tax would only apply from 2026 at the earliest.

• 2021 – the government postponed MTD for Income Tax until April 2024. This had been expected to become law in April 2023 and would have affected four million self-employed people and landlords with business/property income above £10,000.

• 2022 – the government again (for the second time) postponed MTD for Income Tax. As it stands, the scheme will be launched in two phases, with self-employed people and landlords earning over £50,000 subject to the rules from April 2026, and those earning over £30,000 from April 2027.

What are the quarterly filing deadlines?

Under MTD for Income Tax Self Assessment (ITSA), the filing deadlines will fall 1 month after the quarterly period as follows:

• 6 April to 5 July: filing deadline 5 August

• 6 July to 5 October: filing deadline 5 November

• 6 October to 5 January: filing deadline 5 February

• 6 January to 5 April: filing deadline 5 May

EOPS and final declarations:

You must file an “end of period statement” (EOPS) and a final declaration online by 31 January (following the end of the tax year). Your EOPS must include 4 quarterly submissions, and ensure you include any relevant relief claims or adjustments that may be required. Essentially, your final declaration will now replace the annual self-assessment tax return submission we are used to under the current system.

What else do I need to know?

• Your Income tax payments will still be due by 31 January following the end of the tax year and the payments on account (January and July) requirement will remain unchanged.

• All your records will be required to be kept in a digital format (either a bank feed, electronic invoices or via photos).

• Make sure to keep records for 5 years and 10 months following the end of the tax year in case of an investigation, on the basis that HMRC have not stated otherwise.

Why Making Tax Digital can make life easier:

Digital tax gives you a much better insight into your taxes, meaning you get more accurate visibility into your business finances (including cash flow). Calculating your Tax liability in this way should be hassle free, since it now will simply be a matter of clicking or tapping a button to prepare your report through your MTD compliant software. For the EOPS and final declaration, you’ll again click a button to prepare a report, then check the details to ensure everything is correct, before submitting.

How can you prepare as a Sole Trader for the Changes?

• Basis period reforms – this transition must happen across the tax year 2023/24 and will mean you temporarily extend your basis period for that year to consider the extra time until the new tax year starts in April.

• Start to consider using a compliant accounting software system and keeping digital records.

• Snap receipts – ensure you continuously take photos of all receipts.

• Implementing these new changes should make life tracking your sales and purchases slightly easier compared to how things are now.

If you have any questions or need assistance moving over to digital software, please do not hesitate to get in contact with us today.