Time to prepare for Making Tax Digital for Income Tax

Sean Farnell, Partner, discusses Making Tax Digital (MTD) for Income Tax which will come into force from April 2024.

Every VAT Registered business in the country should now be registered for Making Tax Digital (MTD) for VAT – however, recent figures from HMRC have indicated that 600,000 eligible businesses are still yet to register!
Sean Farnell
Sean Farnell

While there is a degree of urgency for those businesses to get registered as they should have been by April 2022 – and fast – the focus has now turned to Making Tax Digital for Income Tax which is under two years away.

MTD for Income Tax will come into force from April 2024. That may sound like a long time in business, but as the pandemic showed us, that two years can absolutely fly by.

The new rules will be applicable to all traders with income exceeding £10,000, and that’s not only for limited companies, it will cover individuals and partnerships as well. It’s important to remember that the £10,000 threshold is INCOME (sales/turnover) rather than profit, and if you have two small sources of income (for example a small business and a rental property) and the total combined income is more than £10,000 you will have to report under MTD for both sources.

So that is pretty much everyone, even somebody with a small business comprising of a couple of rental properties.

  • We’re already advising our clients that they should aim to start preparing for the change before April 2023, giving them a year to iron out any challenges or difficulties.
  • Make sure that bookkeeping for a business has been moved onto a MTD compliant system – such as Xero.

Burgis & Bullock will be running training and information seminars throughout 2022 and 2023 to help businesses through the process, which continues the seminar programme we provided for MTD for VAT.

The sessions were a huge success first time around. We had great numbers in attendance and great engagement during the seminars – with many businesses taking up the option for us to support them into moving onto online platforms.

While we mainly use Xero at Burgis & Bullock, and advise our clients to do so, we do also operate bridging software to link clients’ existing bookkeeping digital systems directly with HMRC – for example an Excel spreadsheet.

We also have a bespoke system for Landlords that not only keeps them MTD compliant, but also keeps track of important documentation, lease details, EPC ratings, rental and expense receipts, and property valuations.

These are cost effective ways of complying with the regulations with modest monthly fees without investing in any new software and digital systems.

When MTD for VAT came out in 2019, there was a 12 month period of leniency from HMRC, but importantly, this time around, there will be no soft landing period.

HMRC is expecting people to get it right straight away… and this is why we are recommending at least starting the process with 12 months to spare.

Businesses that do not comply could be punished under the points based penalty regime system.

Here are our top three tips to making sure a business is compliant for Making Tax Digital.
  1. Ensure you have a digital system installed and operational
  2. Once the information has been entered into the system, it must not be manually amended or the business will fall foul of Making Tax Digital.
  3. If you’re not linking your system in directly with HMRC and you’re using a bridging system that system will need to be able to integrate existing records directly. For example, you could export your Excel file into a .csv and upload. It will be compliant provided there isn’t any manual amends or typing.

Burgis & Bullock will be here to support with any advice and guidance – but please do get in touch!

We know that for Income Tax this is all brand new for businesses. From 2024, traders will have to make a quarterly return of income expenses – and then still do the annual return alongside those.

That takes the submissions effectively from one to five. We can be there to guide you through the process.

We would urge any business to start planning by April 2023, and for business owners to ensure they are ready for the change by April 2024.

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