Making Tax Digital - The Next Phase

Photo by Jon Tyson on Unsplash

Back in 2015, the then Chancellor made a very bold statement, that it was his intent to ‘abolish the tax return’. 

​In the background, HMRC have been digitising tax services and have recently completed the rollout of VAT and now are working on income tax for sole traders and landlords.

Read on to find out more about the changes and what you might need to start thinking about now, to ensure you and your business is ready.

MTD – What will have to be done under the new rules? 

If you are a self-employed business owner (not company owner) and/or landlord and you're affected by MTD for Income Tax, you will have to take the following actions from 6th April 2024: 

• Keep records of your business income and expenses in a digital format
• For each type of revenue (self-employed business or property), and;
• Send quarterly updates of your business income and expenses to HMRC 
• Complete a final declaration process – see below

Rather than submitting a tax return 10 months after the year end, income will be confirmed by submitting an End of Period Statement for each source of income along with a final declaration.  This process effectively replaces the traditional tax return.
Digital Records
Under MTD for Income Tax, you will need to keep digital records for all your business income and expenses, including all your income from self employment or property. 
Many of you are already on software so actually there wont be too much of a change but for those not on software it’s worth starting to think about it.  Whilst HMRC are developing a free tool, it is unlikely that I will adopt it and it is worth looking at the following software tools:

• Sage Cloud
• Xero
• Quickbooks

Send Quarterly Updates 

Once you are signed up to MTD for Income Tax, you'll need to send a summary of your business income and expenses to HMRC every three months starting the quarter end 5th July 2024 using compliant software. 
The key deadlines for submitting updates will be the same for everyone who has to follow the MTD for Income Tax rules. These deadlines are: 

• 5th August 
• 5th November 
• 5th February 
• 5th May

(We do expect a penalties regime to be developed)

Finalise Business Income

At the end of the tax year, you will need to finalise your business income by completing an end of period statement for each source of income, along with a final declaration that replaces the current Self Assessment Tax return.   This process will let you confirm that the updates you have sent are correct and to add any details about personal income or reliefs or make any other necessary adjustments. 
​
Following the same rules as the current Self Assessment process, you will have to submit the EOPS and final declaration and pay the tax you owe by 31st January of the following tax year – so the first one will be 31 January 2025.

Things You Can do Now

1. Try running all of your income and expenses through a separate bank account – this makes digitising the records much easier
2. Make sure the bank account does online bank feeds
3. Don’t put any personal transactions through the separate bank account & just take some ‘wages’ when you need to
4. Use less or no cash!
5. This about ways to move from paper records and spreadsheets
6. Have a look at websites like Sage and Xero to get a feel of the software – both produce great sales invoices so there’s a real plus here!
7. Have a think about how much support you’ll need