Making Tax Digital – Sole Traders and Landlords: Part Two
In this second blog on Making Tax Digital (MTD) I consider the practical implications of MTD. The reporting requirements under MTD will be as follows:
An update for each business will need to be submitted to HMRC within one month of each quarter of the tax year – so for the quarter from 6 April to 5 July the quarterly deadline will be 5 August. The update will be best estimate of income and expenditure for the quarter.
When submitting the update for the final quarter by 5 May there will also be a requirement to submit updates for each of the previous quarters, if required. An update might be required to remove disallowable expenses or to claim capital allowances.
HMRC will produce an income tax estimate for the year.
By 31 January following the end of the tax year, the individual will need to submit a final declaration (end of period statement) for the year. This will include details submitted under MTD for all businesses as well as other income sources (such as interest/dividends). This will be the equivalent of submitting a self-assessment tax return.
MTD has applied to all VAT registered businesses since April 2022. However, it should be noted that separate registrations will be required for MTD for VAT and MTD for income tax.
Tax payment dates under MTD will remain as they are – so a balancing payment due on 31 January following the tax year, with estimated payments on account due on 31 January during the tax year and 31 July following the tax year.
Taxpayers who currently submit tax returns because they have the likes of investment income, overseas income or capital gains to declare will continue to submit annual self-assessment tax returns.
New businesses should be aware that MTD will be with us in the next few years. Rather than wait until 2026, it would make sense to have a MTD compatible system in place from the outset even if turnover is expected to remain below the current thresholds.
Existing businesses will need to prepare for the additional administrative burden, although they will have the software to cope with this.
Please get in touch if you are a new or an existing business and have any queries about MTD.
Photo by Patrick Tomasso on Unsplash.