The new Making Tax Digital (MTD) rules for Income Tax have now come into effect.
If you are self employed or a landlord with turnover of over £50,000 you will need to comply with the new rules and make quarterly submissions to HMRC declaring your income and expenditure. The threshold is for turnover or gross sales, meaning the amount BEFORE you deduct any allowable expenditure.
You will need to make these declarations using MTD compliant software. Please be aware that the £50k is a total amount, so if you earn £35k through your sole trader business and another £15k as a landlord, then you meet the threshold and have to report. You will have to make separate returns for your sole trader and property businesses, so 8 returns in total. If you are VAT registered then you will have already been making MTD submissions for VAT since April 2022, but these are in addition to your VAT returns.
The three big changes for anyone affected will be:
1. Digital record keeping – you must now keep a digital record of income and expenditure, in MTD compliant software
2. Instead of one final tax return, you will now need to make four quarterly declarations of income and expenditure
3. After all four quarters have been submitted, you will still need to make a final End of period tax return declaration.
The quarterly returns are a summary of income and expenditure in the period, and are not as detailed as a full tax return.
By default, the periods will be:
6th April to 5th July – due 7th August
6th July to 5th Oct – due 7th November
6th Oct to 5th Jan – due 7th February
6th Jan to 5th Apr – due 7th May
From April 2027, anyone with a sole trader/property income of over £30k will need to comply with MTD rules and from April 2028 anyone over £20k will need to comply. Please note, as it currently stands, it only effects sold traders and landlords. If your income does not come from these two sources, for example it comes via PAYE, a partnership or dividends from your company, then nothing changes and you will still file a personal tax return as normal.
If you started your self employment and/or property business during the previous tax year, you will need to pro rate your total income to see if you reach the threshold on an annualised basis, if you do you will need to report under MTD. If your property is joint owned, then only your share of the income counts towards the threshold.
If HMRC thinks that you will likely be affected by these changes they may have already written to you about them, but even if they haven’t it is down to the individual to take responsibility for their own record keeping and reporting.
These changes will currently not affect the dates on which tax is due. January 31st is still the deadline for any balancing payment to be made, along with the first payment on account, and 31st July for the second payment on account.
Once you have met the criteria to join MTD, you cannot leave until you have been below the relevant threshold for at least three consecutive tax years in a row. You may be granted a special right to leave if the costs of staying in MTD outweigh what you earn, but you would have to convince HMRC of that before they granted any exemption.