Last month, the government announced that it has delayed the introduction of Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) until April 2024.
Making Tax Digital for Income Tax is part of the government’s plan to make tax recording more efficient, effective, and accurate for individuals and businesses.
The scheme will now be introduced in the tax year beginning April 2024, which is a year later than planned.
The delays are to give businesses and landlords sufficient time to prepare for Making Tax Digital for Income Tax following the effects of the COVID-19 pandemic.
Who does Making Tax Digital for Income Tax apply to?
Making Tax Digital for Income Tax applies to an individual, partnership, or trust who is registered for Income Tax Self Assessment with a total business or property income above £10,000 per year (gross income or turnover).
What accounting records do I need to keep and submit?
If you meet the eligibility criteria for Making Tax Digital for Income Tax, then from 6 April 2024 you’ll need to use MTD compatible software to:
At the end of the tax year, you need to finalise your business income by submitting an end-of-period statement.
You can produce these statements using your chosen cloud-based software. This is where you confirm that the updates of your income and expenditure you have recorded are all correct and make any necessary adjustments.
What if I receive income from more than one source?
You will need to include each source of income that you receive.
For example, your income before you deduct expenses (gross income) could be a combination of:
As the qualifying income in the above example is over £10,000, then you would need to sign up to Making Tax Digital for Income Tax for both businesses.
A new penalty system is being introduced to align with the introduction of Making Tax Digital for Income Tax in 2024.
The penalties to pay for late submissions are outlined in our table below:
The new penalty system for those who are required to use Making Tax Digital for Income Tax will now come into effect in the tax year beginning in April 2024, and in the tax year beginning in April 2025 for all other ITSA taxpayers.
Who is exempt?
You are exempt from signing up if your qualifying income is £10,000 or less.
The below groups are not eligible to sign up for Making Tax Digital for Income Tax and do not need to follow the requirements:
- trustees of registered pension schemes
- non-resident companies
What other changes were announced?
It was also announced that general partnerships will not be required to sign up for Making Tax Digital for Income Tax until the tax year beginning in April 2025.
The date that other types of partnerships will be required to join will be confirmed by HMRC in due course.
Making Tax Digital for VAT (MTD for VAT)
At present, all businesses with an average turnover that is above the VAT threshold are required to use online software to store their records and file their VAT returns.
However, from April 2022, all VAT-registered businesses must file their VAT returns online, regardless of whether their business turnover is above or below the VAT registration threshold.
You can get ahead of the game and choose to voluntarily join the Making Tax Digital service now so you can get to grips with the process, or alternatively wait until it becomes mandatory in 2022.
How Blue Spire can help
If you are a sole trader or a landlord and your income exceeds £10,000 from your businesses, then you will need to make sure you are ready for Making Tax Digital for Income Tax by April 2024.
If you would like to discuss how you can prepare for Making Tax Digital, please contact us and we will be happy to help.