Preparing for Making Tax Digital and income tax

Self-employed businesses and landlords will come under the umbrella of the Government’s Making Tax Digital from 2024.

Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) will be introduced on 6 April 2024. It was originally planned to be introduced in April next year but was delayed because the Government recognises the challenges faced by many UK businesses as the country emerges from the pandemic.

MTD is part of the Government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs.

Who will be affected by the change?

Businesses with income greater than £10,000 per year from:

• Self-employment
• General partnerships with only individuals as partners
• Property businesses (UK and overseas)

It will affect those with an annual business or property income above £10,000, who will need to follow the rules from that date and will replace the current system of annual Self Assessment tax returns.

Partnerships with individual partners will be required to follow the rules from April 2025.

Business owners and landlords will no longer file an annual self-assessment tax return, unless exempt from MTD for ITSA.

Instead, each business will need to file four quarterly updates and an End of Period Statement to finalise business profits. They will then need to submit a Final Return with any other income, gains or reliefs.

Who may be exempt?

You can apply if it’s not reasonable or practical for you to use computers, software or the internet if the following applies:

• Your age, a disability or where you live
• An objection to using computers on religious grounds
• For any other reason why it’s not reasonable or practical

HMRC will consider each application on its merits.

A recent survey on Making Tax Digital (MTD) shows taxpayers have an alarming lack of readiness and enthusiasm for the changeover and a lack of awareness that MTD for Income Tax begins in less than two years. The survey by Ipsos showed lack of experience with MTD software was a big problem. A big majority, (86 per cent), had turnover, property income or combined turnover and property income below the VAT threshold, therefore they had no previous experience of using the software.