How MTD for Income Tax will affect small businesses
Updated: Oct 14
Starting April 2024 Making Tax Digital (MTD) for Income Tax will have a big impact on self-employed businesses and landlords with income above £10,000.
The new rules essentially mandate digital record keeping so that all businesses can send quarterly updates to HMRC.
If you're a sole-trader, partnership or landlord keeping paper-only or spreadsheet records then - to put it simply - you'll need to switch to digital (online cloud) bookkeeping.
Ideal for VAT registered businesses with turnover above £85,000 (including those moving towards VAT registration). The Standard Plan suits most businesses: Pricing Plans | Xero UK
Best suited to small non-VAT registered businesses and landlords. Includes a free plan but you'll probably find the bank feed feature worth the small monthly cost: Plans & Pricing - Pandle UK
Are you a retail or mobile business that receives lots of small customer payments? In that case our alternative recommendation is: Countingup (business bank account with integrated bookkeeping) + SumUp for receiving card payments.
Making Tax Digital (MTD) for Income Tax - The Details
The following is what we know so far (per HMRC's latest update 23 Sep 2021: Businesses get more time to prepare for digital tax changes - GOV.UK (www.gov.uk))
MTD for VAT registered businesses was first introduced from April 2019 (if you're VAT registered you'll already be using compliant software but you may be required to make additional electronic reports to HMRC)
Turnover test - MTD applies to businesses with a turnover above £10,000 including income from all businesses and property. So, a person with £6,000 of trading income and £6,000 of rental income will be required to report under MTD as their total turnover exceeds £10,000.
Deferrals / exemptions - there are very few. Most businesses and landlords must be compliant from April 2024. General Partnership from April 2025. Partnerships with a corporate partner and LLP's will have a deferred sign-up date and entities such as Trusts, Estates of deceased persons, Trustees of pension schemes and non-resident companies look likely to be exempt.
Penalties - no detail as yet other than penalties will not apply for the first year.
What info will be submitted to HMRC? - Total sales and totals of expenses by category. Year-end accounting / tax adjustments will be made via a final submission for the year known as the end of period statement (EOPS).
When will submissions be required? - The quarterly filing deadlines will be: 5 August, 5 November, 5 February, and 5 May (i.e. 5 May deadline for the final quarter ending 31 March - 5 April each year)
How will the tax position be finalised? - The EOPS will have to be submitted by 31 January following the end of the tax year, somewhat similar to the current requirement to submit an Self-Assessment Tax Return.
Would you like help to pay less tax? Feel free to get in-touch or check-out our related posts 👇