What businesses and landlords need to know
By Clare Kendall, Business Owner & Bookkeeper, CLK Books
Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is a set of upcoming changes to the Self Assessment tax system. The legislation states that from 6th April 2024 sole trasers and landlords with a total annual business turnover over £10,000 will have to follow the Making Tax Digital rules. General partnerships will need to follow the rules from 6th April 2025. These rules will change how you keep your records, when you submit your tax returns to HMRC and will affect sole traders and partnerships.
Your accounting records will need to be kept digitally and sent to HMRC digitally after the end of each quarter.
Errors and avoidable mistakes cost HMRC an estimated £9 billion per year in uncollected taxes. Keeping information as real-time as possible reduces errors. Making Tax Digital is part of a reform of taxes across all business which started with VAT and will extend to include Corporation Tax in the next phase.
Let’s take a look at the current process.
Assuming you are on a standard tax year (and more about that later), you earn money between 6th April one year and 5th April the next. This is then reported by Self Assessment tax return before 31st January the following year. So if you complete your self-assessment right on the deadline, that’s around 10 months after your year end and a whopping 22 months before the start of that tax year. You can start to see how it would be easy to make mistakes when looking that far back.
Now let’s take a look at what will change.
The proposed changes split the year into 4 quarters starting on 6th April. At the end of each quarter you will have 30 days to submit a return to HMRC so before 6th August, you must send your return covering 6th April – 5th July. Remember, the accounts must be kept and sent digitally. As well as these 4 quarterly returns, there will also be a final return similar to the current self assessment which ties all the information together and includes your income details from other sources e.g. pensions, employment etc. Any tax owed is also due on the 31st January of the following year after the tax year end. This doesn’t change under MTD.
If you’re an unincorporated business (a sole trader, partnership or landlord) with a total turnover above £10,000 then yes it does. Here’s what will change for you:
But it doesn't have to be. Let's take a look at the extra costs;
April 2023 may seem a long way away but by March 2024 every bookkeeper and accountant in the land is going to be busy helping their existing clients to get ready to follow the Making Tax Digital rules. If you need help with software options, and/or regular bookkeeping, please get in touch.
NB: If you’re an existing client and this affects you I will be in touch with you to help you plan what needs to be done. Just sit tight and watch your inbox.