Making Tax Digital (MTD) is a newly legislated flagship programme of the UK”s government, intended to change the way businesses submit their Income Tax Self Assessment (ITSA) returns towards a fully digital tax system, which is planned to allow taxpayers to easily keep digital records and report their tax liabilities and payments in real time.

MTD for ITSA’s legislation will come into effect on  6 April 2024, need to make quarterly reports under Making Tax Digital for income tax by every individual, sole traders and landlords with business and rental income over £10,000 per annum. 

MTD ITSA will mean major changes for some taxpayers in how they keep their accounting records, file their annual returns and  manage their tax obligations with HMRC. It is therefore a good time for affected businesses and landlords to take stock of their current position, and to establish what preparations they will need to make to be ready for the upcoming changes.

What are the MTD for Income Tax rules?

From 6th April 2024, all affected self-employed business owners and landlords will need to:

• sign up for MTD for Income Tax via HMRC’s website
• keep digital business records
• Use MTD-compatible accounting software 
• Send quarterly business income and expenses updates to HMRC through the software
• Finalise the business income in a declaration which confirms that the updates sent are correct, and make any accounting adjustments
• Submit this final declaration to HMRC. This will replace the annual Self Assessment tax return

Requirements

You’ll need to use MTD for Income Tax-compatible software to store digital records, send the required information to HMRC, view HMRC’s estimate of the final tax bill, and send a final declaration to crystallise your income tax. After the fourth quarter, an End Of Period Statement will need to be made to finalise each business income source. A Final Declaration will also need to be made, to include other sources of taxable income such as savings and investment income. Some of the requirements must meet are:

After April 2024:

• 4 quarterly submissions per business
• 1 annual End of Period Statement per business
• 1 annual ‘Final Declaration’ submission per individual
• Filing via MTD-compliant software
• Keeping digital records

Our MTD for Income Tax interactive tool can tell you whether the rules will apply to you and when your submissions will be due.

Quarterly summaries

Quarterly summaries will include details of the income and expenses for each self-employment and property business during each quarterly period. Every 3 months, your compatible software will add together your digital records to create totals for each income and expense category.The deadlines for submitting quarterly updates are the same regardless of whether the business’s updates are based on standard quarterly periods or on calendar quarters. The standard quarterly periods and deadlines in each tax year are:

Quarterly period                       Quarterly deadline

6 April to 5 July                             5 August

6 July to 5 October                        5 November

6 October to 5 January                 5 February

6 January to 5 April                       5 May

Business owners and landlords can choose to submit updates that are based on calendar quarters instead of the standard quarterly periods. The calendar quarters and deadlines are:

Quarterly period                   Quarterly deadline

1 April to 30 June                  5 August

1 July to 30 September         5 November

1 October to 31 December    5 February

1 January to 31 March           5 May

The quarterly updates will give business owners and landlords a year-to-date calculation of how much tax they owe, based on the information provided in the summary.

Final declaration each year

By 31th January following the end of the tax year, you need to ‘crystallise’ your income tax. This means you’ll need to use software to view the final income tax estimate calculated by HMRC, which includes details of all the income, expenses and allowances you’ve told it about. Our Accountant in GNS makes corrections or adjustments at this point too. You’ll then need to legally declare – via the final declaration – that you’ve provided HMRC with all the information it requested and that you agree with its income tax calculation. This final declaration brings together all information on your sole trader businesses and properties provided via the quarterly updates and EOPS, as well as information on other sources of income that fall outside of MTD, such as dividends and interest. You’ll only need to submit a final declaration each tax year.