If you are a sole trader or property landlord change is on the way. Making Tax Digital (MTD) will become mandatory for not only VAT-registered businesses but sole traders and property landlords.
Making Tax Digital for Income Tax Self-Assessment (ITSA) will apply to individuals from April 2024, if their total gross income from self-employment and property exceeds £10,000 in a tax year. Most businesses will have two years to prepare and test the service voluntarily prior to its introduction.
For many years now, we have seen the benefits of digitalisation. Many companies are already banking, paying bills and interacting with their customers online and using accounting software. HMRC are hoping that by making tax digital, tax administration will become more effective, more efficient and easier for taxpayers.
Businesses and landlords who join MTD must keep their business records digitally and send tax information to HMRC directly from these records. Businesses and landlords who join MTD for Income Tax will need to send a quarterly summary of their business income and expenses to HMRC using MTD-compatible software. HMRC will then provide an estimated tax calculation based on the information provided to help them budget for their tax. At the end of the year, they will be able to add any non-business information and finalise their tax affairs using MTD-compatible software. This replaces the need for a Self-Assessment Tax Return.
Businesses and landlords will be able to use their software to send all of the information that they need to under Self-Assessment, not just their business or rental income. This includes employment income, bank and building society interest, dividends, pension contributions, student loan repayment etc.
Benefits of digital record-keeping
- Software not only helps the effective running of a business but also reduces errors when manual calculations are performed.
- Keeping digital records in real time can reduce the risk of errors.
- Digital record-keeping makes managing business finances more straightforward.
- Digital record-keeping means businesses can share records with their agent more easily, saving time and costs.
To check if you qualify for Making Tax Digital for Income Tax then please read this guidance from HMRC.
If you are a sole trader or property landlord change is on the way. If your total gross income from self-employment and property exceeds £10,000 then MTD for ITSA becomes mandatory.
If your financial year / trading year is not 31 March then you need to consider changing your financial year end, and act sooner rather than later so you have adequate time to implement the necessary changes before the April 2024 deadline.
Please get in touch and we can help you prepare for the new regulations.