From April 2024, sole traders and landlords will need to join the Making Tax Digital programme. The deadline has been moved back from 2023 due to the pandemic.
This government programme is designed to move the UK towards a fully digital tax system. The aim is to reduce errors and give HM Revenue & Customs (HMRC) more information and visibility.
The benefit to businesses and landlords is that they will have easy access to digital records and be able report their tax liabilities and make payments in real time.
Limited companies began moving to Making Tax Digital from 2019, and the government has reported that 69% of them have found at least one benefit to the new system.
What will I need to do?
Individuals with business income over £10,000 per annum will need to make quarterly reports under Making Tax Digital for income tax. This will include many sole traders and landlords, but partnerships aren’t required to adopt it until 2025.
You will need to keep your accounting records electronically (either on a spreadsheet or with suitable accounting software). You will file quarterly returns to HMRC with details of income and expenditure. You will also need to submit a final end-of-period statement after the tax year ends.
While reporting frequency will change, tax payment timing will not. The current system of payments on account, and balancing payment by 31 January following the end of the tax year, is staying in place for the foreseeable future.
Deadlines for the quarterly payments will be:
|Period covered||Filing deadline|
|Quarterly update 1||1 April to 30 June||5 August|
|Quarterly update 2||1 July to 30 September||5 November|
|Quarterly update 3||1 October to 31 December||5 February|
|Quarterly update 4||1 January to 31 March||5 May|
Can I sign up early?
You can sign up voluntarily now and start using the service if you’re:
- a UK resident
- registered for Self Assessment with returns and payments that are up to date
- a sole trader with income from one business, or a landlord who rents out UK property
What’s in it for me?
While it’s never fun to be set a deadline to adopt something new, Making Tax Digital has the potential to make your life easier.
Moving to a cloud accounting system is a fairly straightforward way give you the necessary digital records for tax purposes. It could also make your accounting simpler and less time-consuming.
Various accounting tools allow you to match up payments going in and out of your bank account, scanning and uploading business receipts and give you sight of unpaid invoices, making it easier to chase them up. You can also gain useful analysis and projections.
Need some help exploring the options? We can help you find an appropriate accounting package and prepare for the MTD changes.
Are there any exemptions?
As per the exemptions for MTD on VAT, individuals won’t have to adopt MTD for Income Tax if:
- It’s not reasonably practical to use digital tools due to age, disability, remoteness of location or any other reason (often referred to as ‘digital exclusion’).
- You are subject to an insolvency procedure.
- The business is run entirely by practising members of a religious society or order whose beliefs are incompatible with using electronic tools.
If any of the above apply, you must apply to HMRC to claim an exemption. If you have already qualified for an exemption from MTD for VAT, you will also be exempt from MTD for ITSA.
The following are also exempt from MTD for ITSA: Non-resident companies; Trustees, executors and administrators; Foreign businesses of non-UK domiciled individuals.
Want to explore Making Tax Digital and what’s involved in more detail? Just get in touch. As accountants for Sole Traders and landlords in Lancashire we’re here to help. We also manage payroll services and corporate accounts. Contact us