The change to Making Tax Digital is fast approaching, and we have been preparing for the big changes coming to self-employed individuals and landlords. This article explains what these changes will mean.
Making Tax Digital (MTD) will apply to income tax self-assessment next year. This new HMRC legislation has seen many delays and alterations since it was first announced back in 2015 but has been extremely successful since the rollout for VAT in April 2019.
What do I need to do?
With effect from April 2026 you will need to report your income and expenses quarterly if your gross annual self-employment, property income or combined income from both sources exceeds £50,000.
The reporting threshold will be lowered to £30,000 from April 2027. It is proposed to lower the threshold to £20,000 from April 2028.
In practice this means you will need to submit quarterly tax updates each year, the quarters being 5 July, 5 October, 5 January and 5 April. The filing deadline for each quarter will be one month from the quarter end.
You can elect to report using calendar quarters instead, i.e. 30 June rather than 5 July.
A final tax return similar to the current self-assessment tax return will be required once the submission for the fourth quarter has been made. The return will be prepopulated with the records you have already submitted in the year, and you will be able to make adjustments for tax and capital allowances etc.
There will be no changes to the income tax payment dates.
The new MTD system will require you to hold digital records and use specialised software which is MTD compliant. This sounds complicated and onerous, but the software will be able to generate reports at the touch of a button. It will enable users to make your quarterly returns quickly and easily.
This should result in less stress at the tax year end, fewer inaccuracies, and an enhanced HMRC service.
How Do I Prepare?
We recommend keeping your records digitally – even a spreadsheet is enough. Starting to keep records in this way now will make the transition easier when MTD commences.
We fully expect HMRC to expand the MTD service as part of the Government’s digitalisation drive. We expect to see announcements extending the service to other self-assessment taxpayers, and the introduction of MTD for partnerships in the future.
How Can We Help?
We have been preparing for the changes, so if you have any questions on what Making Tax Digital for Income Tax means for you, or simply need some help with the new quarterly reports, please email us witney@bronsens.co.uk or chippingnorton@bronsens.co.uk , or contact your usual Bronsens contact.
We are introducing a bookkeeping service designed for MTD and this can be tailored to deal with your requirements from simple record keeping to full-service bookkeeping. We will provide further information in due course.
