What is Making Tax Digital for income tax?
Making Tax Digital (MTD) is the biggest overhaul of the income tax filing regime in generations and has already been rolled out for VAT.
At the moment, any individual with any income not taxed at source (mainly sole traders and landlords) have to file an income tax return via the HMRC self assessment website by the 31 January following the end of the tax year (this runs from the 6th April to the 5th April). Any income tax amounts due to HMRC also have to be paid by the filing date.
From 2026 any self employed business, sole trader or landlord with income of over £50,000 will have to file under the Making Tax Digital Rules. From 2027, any self employed business, sole trader or landlord with income of over £30,000 will have to file under the Making Tax Digital Rules
What does this mean for you if you are captured by the MTD rules?
· You will no longer be able to file your return using the HMRC website;
· You will have to buy special software which will allow you to submit you return instead;
· You will have to submit at least 6 returns for one tax year as opposed to the 1 required under the current system;
· You will have to file income and expense reports for your business on a quarterly basis throughout the tax year in question as opposed to the present system of one filing on the 31 January following the end of the tax year;
· Quarterly updates of your income and expense have to be filed by the following dates:
1. Q1 – 5th August of tax year
2. Q2 – 5th November of tax year
3. Q3 – 5th February of the tax year
4. Q4 – 5th May following the end of the tax year
· An End of Period Statement (EOPS) will have to be filed by the 31 January following the end of the tax year in addition to a Final Declaration;
· The dates on which you make your payments on account and your final balancing payment remain unchanged. This means that your first payment on account will have to be made by the 31 January of the tax year with a second payment made by the 31 July following the end of the tax year. Any outstanding balance which remains after these 2 payments will have to be made by the 31 January following the end of the tax year;
· You will have to maintain your business records digitally. This will mean keeping a track of your business transactions (with details such as invoice numbers) on a spreadsheet or scanned copies of documents (such as bank statements, purchase invoices, sales invoices etc).
What can Spire Accountants do to help you get ready for this revolution?
· We have MTD compliant software, FreeAgent, and will give you access to the mobile app which you can use to upload scanned copies (including pictures taken on your phone) of business documents thereby allowing you to maintain your records digitally.
· We will use the documents uploaded by our clients using the app to create accounting records with the documents uploaded by you;
· The mobile app offered through our partner FreeAgent allows you to keep track of your invoices and transactions whist you are on the go with just a mobile phone. This means less worrying for you if, for example, paperwork is misplaced;
· We can also provide you with access to your very own dashboard on FreeAgent which allows you to see how your business is performing (available to our clients using our bookkeeping services or a package which includes bookkeeping);
· Our software is fully compliant for Making Tax Digital for VAT submissions and allows us to make other submissions to HMRC such as payroll reports, corporation tax returns;
· Our software also allows us to prepare and make company account filings with Companies House;
· We can show you how to use the FreeAgent app and how to access and make the most out of your very own FreeAgent dashboard.
Contact us today to help start your own MTD journey.