HMRC’s planned introduction of ‘Making Tax Digital’ (MTD) for Income Tax will be the biggest overhaul of the UK tax system since the introduction of Self-Assessment back in 1995/96!
Despite this major change, there has been little coverage in the media so this may be the first time you have heard about it.
MTD for Income Tax Self-Assessment is due to be mandated in April 2024 and this first step will affect the following three groups whose annual turnover is greater than £10,000:
- Individuals with rental income
- Partnerships and trusts with business or property income
It is estimated that around 4.7m individuals will be affected by the next stage of MTD. For those affected by this change, there will be a requirement to keep records digitally and to send Income Tax updates to HMRC on a quarterly basis. In addition to the quarterly updates, there will be a final end-period statement which will need to be submitted after the tax year to complete an individual’s tax affairs for the year.
So instead of one tax return per year, there will be 5! Although the frequency of reporting will change, the timing of tax payments is expected to remain the same.
At Dafferns we are consulting on the options available for digital recording and filing for this cohort of taxpayers.
Essentially there are three different types of MTD compliant software:
- Software packages – that can be used to keep digital records and file returns directly to HMRC
- API (application programming interface) enabled spreadsheets – spreadsheets with an inbuilt function which allows their data to be filed via HMRC’s API
- Bridging software – which can take data from an existing spreadsheet and submit this to HMRC via HMRC’s API
We will have both software and bridging software to allow us to submit the quarterly and final end-period statements electronically to HMRC. As further details emerge, we will be discussing what these changes mean in practical terms on an individual basis.