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Making Tax Digital For Income Tax

Making Tax Digital (MTD) is a government initiative that aims to transform and digitise the UK’s tax administration system.

It is part of HMRC’s long-term vision to make it easier for businesses to:

  • Increase confidence in getting tax right
  • Reduce scope for error, and reduce time checking submissions
  • Improve certainty and control
  • To support digital integration

What does Making Tax Digital for Income Tax Mean?

Put simply, Making Tax Digital for Income Tax means:

  • Keeping transactional records digitally
  • Submitting these records quarterly to HMRC

From April 2024, income tax returns and self-assessments will need to be digitally recorded and submitted quarterly instead of annually, through Making Tax Digital compatible digital software.

The above means that, for many, there will be a sea change in adapting to new ways of working, adapting to new digital software.

The new process will mean:

  • 4 Quarterly updates of income and expenditure per annum
  • A 5th return which includes end of period statements to finalise business profits
  • A 6th final return which declares any other income, gains and reliefs

There will be no change to tax payments and the deadlines for these.

VAT returns should also be filed separately.

Who is affected by Making Tax Digital for Income Tax?

From April 2024

Landlords (UK and overseas) with income greater than £10,000 per year

Sole Traders and self-employed businesses with income greater than £10,000 per year

The above threshold relates to the sum of the businesses e.g.an individual who has self-employment income below £10,000 may have property income that in total pushes them over £10,000.

From April 2025

General partnerships with only individuals as partners with income greater than £10,000 per year

From April 2026

For Corporation Tax

Who will NOT be affected by Making Tax Digital for Income Tax?

Other types of partnership, including Limited Liability Partnerships (LLPs), that are not general partnerships with only individuals as partners

Trusts and estates

Trustees of registered pension schemes

Non-resident companies.

Get ready for Making Tax Digital for Income Tax

Step1

Identify whether you are affected by Making Tax Digital for Income Tax and which of the above deadlines affects you or your business

Step 2

Apply for an exemption if you are eligible. You must ensure you obtain written confirmation from HMRC of your exemption status. If you already have an exemption from MTD for VAT, your exemption will flow through to other taxes automatically.

Step 3

Separate your business banking from your personal banking now if you haven’t already done so, to begin practicing the habit of separation. This is because you won’t want to provide HMRC or your accountant with all your personal records mixed in.

Step 4

The periods for which your income tax is assessed will change from 2023-24, so that all ITSA returns from 6 April 2024 will be submitted based on the same quarter-ends. This may trigger an increased tax liability, if you don’t already have a 31 March or 5 April year end, which HMRC have said can be spread over 5 years, but be aware of a potential cashflow impact, and potential triggers for things like payments on account, High Income Child Benefit Charge, student loan repayments, etc. Get your records to your tax adviser as soon as possible after 5 April 2024 so they can help you through this transition with plenty of time. You don’t have to change your accounting date, but you may decide it is easier to do so after discussion with your adviser.

Step 5

If you’re using digital software already, ask their support team if they will be MTD compatible. Otherwise speak to your adviser about software options that are the best for your business and that you feel comfortable using e.g. Xero, Quickbooks or Hammock (the latter being created especially for property bookkeeping for landlords).

Bridging software is the term for an intermediary software that sends an Excel spreadsheet to HMRC – however, this lacks lots of the advantages of automated software such as allowing your accountant to log in and see transactions or picking up obvious errors.

Step 6

Get in touch with your accountant to discuss what you’ll need support with – from help with setting up your software, checking your tax returns, submitting them to HMRC, or dealing with the entire quarterly submission process for you. Your accountant will still deal with your 5th and 6th year-end submissions if they already do so.

Step 7

Keep checking this website for updates.

How Can PKF Francis Clark Help?

We can help in two ways:

  1. The transition to digital software:

    • Consultation on software solutions for your industry, and what tools can save you time
    • Software setup (and subscription discounts)
    • Training
    • Ongoing support.
  2. The quarterly submission process:
  • On a sliding scale from most to least involvement:
    • All submissions – we can deal with the entire process for you and take this off your hands. This is a good option for those with little time for the quarterly compliance
    • Checking submissions – if you are happy preparing your own returns but would like us to check them for added reassurance
    • Submission only – if you prepare your own returns but just don’t want to deal with using software, send us your figures so we can submit them using our bridging software. Please be aware this does not involve any checking of your figures and is purely submission only
    • Year-end submissions only – you can prepare and submit all quarterly updates yourself, and we will just deal with the accounting and tax adjustments in the 5th and 6th year-end submissions.

Get In Touch

We’d love to help you. For a free no obligation chat about one of the above options, please in one of our 8 office locations below.

Get in touch


Get in touch to find out how our Making Tax Digital For Income Tax specialists can help you today:

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