The rules for MTD for Income Tax
28/05/2021

Making Tax Digital (MTD) will fundamentally change the way businesses, the self-employed and landlords interact with HMRC. The regime will require businesses and individuals to register, file, pay and update their information using an online tax account.

The regime started in April 2019 for VAT purposes but only for VAT registered businesses with a turnover above the VAT threshold. The further rollout of MTD will start in April 2022 when MTD will be extended to all VAT registered businesses with turnover below the VAT threshold of £85,000.

This will be followed one year later, from 6 April 2023, when MTD for Income Tax is introduced. The rules will apply to taxpayers who file income tax self-assessment tax returns for business or property income over £10,000 annually.

Some businesses and agents are already keeping digital records and providing updates to HMRC as part of a live pilot to test and develop the MTD service for Income Tax. Under the pilot, qualifying landlords and sole traders (or their agents) can use software to keep digital records and send Income Tax updates instead of filing a Self-Assessment tax return.

Every 3 months users will electronically send a summary of their business income and expenses to HMRC. At the end of their accounting period, users will need to finalise their business income and expenses and submit a final declaration (replacing the Self-Assessment tax return). This is where you will also be able to submit information about any personal income and claim reliefs.

 

Follow the rules for Making Tax Digital for Income Tax

Find out about keeping digital records, signing up and using software to send income and expenses updates.

Published 19 March 2020

Last updated 21 July 2020 — see all updates

From: HM Revenue & Customs

Contents

Who can follow the rules

When to follow the rules

Keeping digital records

Signing up

Sending updates using software

Finalising your business income

Submitting a final declaration

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

 

Who can follow the rules

You can follow the rules voluntarily if all of the following apply:

·        you’re a UK resident

·        you’re registered for Self Assessment and your returns and payments are up to date

·        you’re a sole trader with income from one business only or a landlord who rents out UK property (or both)

 

You cannot sign up if you need to report:

·        income from any other sources

·        any taxable payments you make or that you claim tax relief on

 

When more businesses can sign up, this page will be updated.

When to follow the rules

You can choose to follow the rules voluntarily now.

You must follow the rules for your next accounting period that starts on or after 6 April 2023, if your taxable turnover from your self-employed business or income from property is above £10,000.

Keeping digital records

You’ll need to keep digital records of all your business income and expenses - this includes income from self employment or property.

You should start to keep digital records at the start of the accounting period you are signing up for. You’ll need to do this for the whole of the accounting period.

You’ll use software to keep records and send updates. Make sure you have software that’s compatible with Making Tax Digital for Income Tax.

 

Signing up

You can sign up now for your current or next accounting period.

You can sign up your business for Making Tax Digital for Income Tax, or if you’re an agent there is a different way to sign up your client.

 

Sending updates using software

Before you send updates, follow the instructions using your Government Gateway user ID and password to authorise your software - use the user ID you got when you signed up for either:

·        Self Assessment

·        an agent services account

 

After your software is authorised you’ll send updates to HMRC every 3 months. Updates are summaries of your business income and expenses. Your software will tell you when and how to send the updates.

Finalising your business income

At the end of your accounting period you need to finalise your business income in a declaration. This is where you confirm that the updates you sent are correct and make any accounting adjustments.

Submitting a final declaration

The final declaration replaces the Self Assessment tax return.

 

Submit your final declaration after the end of the tax year it applies to. This is where you can tell HMRC about any personal income you have or reliefs you claim.

You’ll then be able to view a tax calculation in your software, or by signing into:

·        Self Assessment (if you’re a sole trader or landlord)

 

You must submit your final declaration and pay the tax you owe by 31 January the following tax year.

 

 


PBT Accountancy Limited