The way that self-employed taxpayers submit their self-assessment tax returns in set to change… It’s important to be aware that if you own a business or are self-employed and pay income tax, national insurance, VAT or corporation tax, then it is likely you will be affected by the arrival of Making Tax Digital (MTD).
But what’s changing?
HMRC is implementing some radical changes that will mean a single, annual tax return will become five new reports that must be submitted during and after the tax year. The new system was due to come into force for self-employed businesses, partnerships and landlords with a turnover above £10K from April 2023, then April 2024, but this has now been delayed until 6th April 2026.
The HMRC have explained the additional delay in their statement dated 20th December 2022 to say:
“The UK Government understands businesses and self-employed individuals are currently facing a challenging economic environment, and that the transition to MTD for ITSA for the self-employed and small landlords represents a significant change for taxpayers, you as agents, and for HMRC.”
The new reporting system, when it does come into effect, will require five submissions to be made for each tax year. The dates for these five reports are as follows:
Quarter 1 Period 6th April – 5th July Deadline – 5th August
Quarter 2 Period 6th July – 5th October Deadline – 5th November
Quarter 3 Period 6th October – 5th January Deadline – 5th February
Quarter 4 Period 6th January – 5th April Deadline – 5th May
Following the 4 submissions above an End of Period (EOP) statement must then be filed by 31st January following that tax year. Mirroring the current system, any tax liability will need to be paid by 31st January of the following year. There is due to be some scope to enable people to voluntarily pay their taxes as they go, but details of this are yet to be announced.
This government initiative, set to make the current tax system more modern, effective and straightforward, will mean that you can upload and update your tax position in real time. You will be required to use MTD compliant accounting software, which must be used in line with the dates above, to update HMRC about your taxes.
For businesses that may have been avoiding digital accounting, MTD will force their hand and require them to make the required changes. Anyone using software that isn’t compatible with MTD will also need to source compliant software.
There are 2 important deadlines to be aware of in the plans for MTD – one of which has passed and one of which is creeping up on us…
From April 2022 HMRC required all businesses with a turnover below £85K to have switched to digital accounting systems and digital VAT returns.
Next comes April 2026 when self-employed workers and landlords with a turnover above £10K will also need to become MTD compliant. It is estimated that this change will impact over 800,000 people!
The Government’s December announcement also confirmed the following:
- From April 2026, self-employed individuals and landlords with an income of more than £50,000 will be required (mandated) to keep digital records and provide quarterly updates on their income and expenditure to HMRC through MTD-compatible software.
- Those with an income of between £30,000 and up to £50,000 will need to do this from April 2027.
- We anticipate that most taxpayers within the scope of MTD for ITSA will be able to sign up voluntarily before they are mandated to do so
- The UK Government will not extend MTD for ITSA to general partnerships in 2025. The government remains committed to introducing MTD for ITSA to partnerships at a later date, to be confirmed.
- The UK Government will review the needs of smaller businesses, and particularly those under the £30,000 threshold before taking further decisions. This will look in detail at how the MTD for ITSA service can be shaped to meet their needs and the best way for them to fulfil their Income Tax obligations. Once that review is complete – and in consultation with businesses, taxpayers, agents, and others – the UK Government will lay out the plans for any further mandation of MTD for ITSA.
As always, there is more information available about MTD on the HMRC website – please see https://www.gov.uk/government/publications/making-tax-digital. You can also sign-up for MTD by visiting https://www.gov.uk/guidance/sign-up-your-business-for-making-tax-digital-for-income-tax ensuring you’re kept up to date with all your obligations and are 100 per cent ready to make the transition.
Here at Ellacott Morris our entire team is well versed when it comes to all things MTD and we’re ready to help our clients make the required changes well ahead of the deadline. Don’t leave it until the last minute – let us help you prepare for MTD now. Get in touch and let’s discuss how Making Tax Digital will affect you.