The government is extending the requirement to operate Making Tax Digital (MTD) to the 4.2m taxpayers with business and/or property income over £10,000, including landlords, sole traders and partnerships, for their Income Tax obligations.
These changes will apply to businesses, self-employed individuals, and landlords who have profits chargeable to Income Tax and pay Class 4 National Insurance contributions (NICs).
Making Tax Digital (MTD) is the first phase of the move towards a modern, digital tax service fit for the 21st century. It supports businesses through their digitalisation journey and provides a digital service that many have come to expect in their everyday lives. MTD and its extension form a crucial building block in the government’s 10-year strategy, ‘Building a trusted, modern tax administration system’, published 21 July 2020, to make the tax system more resilient and effective, to boost business productivity, and better support taxpayers.
The Government recognises the challenges faced by many UK businesses as the country emerges from the pandemic over the last year. In recognition of this and of stakeholder feedback, we will now be introducing MTD ITSA a year later, in April 2024 instead of April 2023.
MTD ITSA builds on the successful introduction in April 2019 of MTD for those VAT-registered businesses with taxable turnover above the VAT threshold and will follow the introduction of MTD for VAT-registered businesses with turnover below the VAT threshold from April 2022.
There is a growing body of evidence, from research and insights from taxpayers already operating MTD VAT, which demonstrates that MTD is securing a range of benefits for those that use it in practice. MTD users are reporting that preparing and submitting returns is easier and that MTD has increased their confidence in managing tax affairs and using technology.
Over a quarter of VAT-registered businesses below the VAT threshold have voluntarily chosen to join MTD VAT, demonstrating that a modern, digital approach to managing tax can work for businesses of every size. Many of these businesses will also have Income Tax obligations and will be keen to operate MTD ITSA.
Under MTD, businesses must keep digital records and use third-party software to submit their tax returns to HM Revenue and Customs (HMRC). Under the changes, those mandated to use MTD ITSA will need to keep records of their income and expenditure digitally and send a quarterly summary of income and expenses, and an end-of-year report, using MTD-compatible software (or applications).
The software these businesses use must be MTD enabled, and capable of receiving information from HMRC digitally via HMRC’s Application Programming Interface (API) platform.
More information can be found at Making Tax Digital (MTD) – Customer Costs and Benefits for the Next Phases of MTD where the impacts, costs, and benefits to businesses and individuals of the next phases of MTD expansion (ITSA and VAT) together, set out in further detail.
Call a member of the team today to find out more on 01942 816 512.