• John Massey

How MTD for Income Tax will affect small businesses

Updated: Sep 9

Starting April 2024, Making Tax Digital (MTD) for Income Tax will significantly impact 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.

HMRC Making Tax Digital

For our top recommended bookkeeping apps, see our advice page: Bookkeeping Software & How-To



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 in 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.

  • The £10,000 threshold applies to individuals. So, if you rent property jointly (splitting the income 50/50), you may not need to comply with MTD until your joint rental income exceeds £20,000.

  • Deferrals / exemptions - there are very few. Most sole-traders and landlords must be compliant from April 2024, Partnerships 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 - 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 and 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 a Self-Assessment Tax Return.


Prepare now


April 2024 (or 2025 for Partnerships) seems a while off yet. However, doing the following will help you to be prepared:


  • If you currently use a personal bank account for business, consider setting up another one and moving any personal payments, direct debits, etc., over to the new account; leaving only business transactions behind (this presumes you don't wish to set up a new business bank account)

  • Consider shortening your year-end from 5 April to 31 March (MTD will be easier to operate if you're working to calendar, not tax quarters)

  • To avoid teething problems, we'll encourage all clients to adopt their new online bookkeeping system at least one year earlier than MTD requires. Familiarise yourself with the best option for you: Bookkeeping Software & How-To

  • We invite our clients to get in-touch and discuss your arrangements for meeting the MTD requirements


Would you like help to pay less tax? Feel free to get in touch or check out our related posts 👇

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