Making Tax Digital for Income Tax

Following numerous delays, Making Tax Digital for Income Tax (MTD for IT) is only a year away from being made compulsory for individuals with an annual gross rental income and/or a gross self-employed income of over £50,000. The income threshold will be lowered over the next few years, and it is likely to catch out many self-employed individuals and landlords who currently only submit an annual self-assessment tax return.

MTD for IT is a new way of reporting income and expenses if you are a sole trader or landlord. This is an additional reporting requirement being brought in by HMRC and it will be a big change for many sole traders and landlords who are used to reporting their income and expenses annually on their tax return, and who do not keep digital records.

Who will be required to register for MTD for IT, and when?

What are the requirements for MTD?

Under the new method of reporting, sole traders and landlords will need to use compatible software that enables them to:

• create and store digital records of their business income and expenses
• send quarterly updates to HMRC (you will not be required to pay your tax quarterly)
• continue to submit an annual tax return and pay tax due by 31 January the following year

What do you need to do now?

You need to ensure your records are kept up to date on a regular basis and in a digital format. It is worthwhile getting into this habit now so that you are prepared for when quarterly updates are required.

The quarterly updates will need to be submitted one calendar month and two days following the quarter end. This is a much tighter deadline than the current annual self-assessment deadline.

The quarterly and annual returns will need to be submitted on compatible software.

If you would like to discuss how Making Tax Digital for Income Tax affects you, please contact our Personal Tax Accountants.