Making Tax Digital for Income Tax: What You Need to Know

HMRC have announced a delay to the launch of Making Tax Digital for Income Tax Self-Assessment, which was due to start in April 2024.

This has now been postponed until April 2026, when self-employed individuals (and also landlords) with an annual business turnover above £50,000 will be the first to comply with Making Tax Digital for Income Tax (MTD). This means they will have to keep digital records of their income and expenses and submit quarterly updates to HMRC.
 

What is Making Tax Digital?Making Tax Digital (MTD) is a government initiative aimed at simplifying tax reporting and making it more efficient. The idea is to move away from the traditional pap owards a digital system that is more accurate, faster, and easier to use. MTD was first introduced for VAT in April 2019, and is now being rolled out for income tax.


What does Making Tax Digital for Income Tax involve?Under MTD for income tax, self-employed individuals and landlords will need to keep digital records of their income and expenses using MTD-compatible software. They will then need to submit quarterly updates to HMRC, summarising their income and expenses for the period. This means that businesses will need to make sure they are using software that is compatible with MTD.

Who needs to comply with Making Tax Digital for Income Tax?From April 2026, self-employed individuals (and also landlords) with income above £50,000 will need to comply with MTD for income tax. This means that they will need to keep digital records of their income and expenses using MTD-compatible software and submit quarterly updates to HMRC.


What are the benefits of Making Tax Digital for Income Tax?The move to digital tax reporting is designed to make the process of paying taxes simpler, faster, and more efficient. Here are some of the key benefits of Making Tax Digital for Income Tax:

• Improved accuracy: Digital record-keeping and reporting should lead to fewer errors, as well as making it easier to spot mistakes.
• Faster processing times: By submitting updates more frequently, businesses should be able to get a better idea of their tax liabilities and payments and avoid any surprises at the end of the year.
• Greater transparency: By making tax reporting more frequent and more detailed, HMRC will have access to more accurate and up-to-date information about businesses' income and expenses.
• Reduced administrative burden: Digital record-keeping and reporting should reduce the amount of time businesses spend on tax administration, allowing them to focus on their core activities.
   

Who is exempt from the Making Tax Digital for VAT rules?If you consider that you are digitally excluded, you will be able to apply for an exemption from using Making Tax Digital for Income Tax. This applies to you if:

• Due to your age, disability, location, or other reasons that it’s not practical for you to use software to keep digital records or submit them.
• If you are a practising member of a religious society whose beliefs are incompatible with using electronic communications or keeping electronic records. You will need to explain how these reasons apply to your own circumstances.
   

How can I prepare my business before signing up for MTD?If you’re expecting to register for VAT soon or are looking ahead on MTD for Income tax, then being prepared for MTD can make the transition period from paper to digital a lot easier. You can get your business MTD ready in 3 steps: checking when you need to sign up, finding the right MTD- compatible software, and finally, registering your business for MTD with HMRC.

In summary, Making Tax Digital for Income Tax is a significant change to the way businesses report their income and expenses to HMRC. However, by embracing digital record-keeping and reporting, businesses can benefit from improved accuracy, faster processing times, greater transparency, and reduced administrative burden. If you are affected by MTD, despite the delay on implementation, it is important to start preparing now to ensure a smooth transition to the new system.

Tax affairs are complicated and we would always advise you to speak with your advisers before making any changes.  For more information on how we can help you and your business please contact us using the form or call 02476673160.

Please note: This article is provided for information only and was correct as at time of writing (23/05/23). Any lists and details provided above are not exhaustive and are not intended to be full and complete guidance.  No action should be taken without consulting detailed legislation or seeking independent professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this article can be accepted.