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Back in 2019 the Government launched it’s Making Tax Digital (MTD) project.

MTD is a key part of the Government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs.   Digitalisation is a key feature of MTD as, going forward, those that fall under MTD must keep digital records and use third party software to submit their returns to HM Revenue & Customs (HMRC).

The first phase of MTD focused on VAT, whereby VAT registered businesses with taxable turnover above the VAT registration threshold were required to comply with MTD from April 2019 onwards.  This was later extended, when VAT registered businesses with turnover below the VAT registration threshold were also required to comply with MTD from April 2022.

April 2024 will see the next phase of MTD being rolled out, in that Making Tax Digital for Income Tax Self Assessment (MTD ITSA) will come into force.

So what does this mean for you?

The extension of MTD ITSA will require an extra 4.2 million taxpayers to comply with MTD.

Taxpayers with business and/or property income over £10,000 per tax year will be caught by the MTD rules from April 2024 onwards.  This will include landlords and sole traders.

The £10,000 limit applies to the total gross income received and not the profit, and where a taxpayer has income from one or more rental properties and a sole trade business they must add together the income from all of these sources to see whether the total exceeds the £10,000 test.

Those who need to comply will have to maintain digital records of their income and expenses and then, using MTD compatible software, send quarterly summaries of these to HMRC followed by an end of year report.

Who will be exempt from MTD ITSA?

Taxpayers who are digitally excluded will not have to comply with MTD ITSA.  You will be excluded if due to age, disability or remoteness of location it is not reasonably practical to keep electronic records or make a return under MTD.  Exclusion also applies to certain religious societies whose beliefs are incompatible with using electronic communications or keeping electronic records.

Trusts and Estates, Limited Liability Partnerships and partnerships where one of the partners is not an individual are all currently excluded from MTD ITSA.  General partnerships where all of the partners are individuals will be brought under MTD from April 2025.

MTD for ITSA will be a significant change to the way that taxpayers keep their records and report this income to HMRC.  We will be bringing to you in our future newsletters specific case studies for different types of clients, for example a rental property owner and a sole trader, and explaining in more detail how these new rules will affect you and how you can prepare in advance of April 2024.

But don’t worry, as always we will be here to guide you through the changes and take away the burden by doing all of the work for you if required.  For those of you who already use accounting software, this will more than likely be MTD compliant and again we will be on hand to help you with the transition.

If you have any queries regarding MTD please do not hesitate to contact Lucy on 01228 711 888 or watch out for more coverage of this in our future newsletters.