What is Making Tax Digital for Income Tax (MTDIT)?
Making Tax Digital for Income Tax is HMRC’s latest attempt to gain direct digital access to client’s records by replacing the once year self assessment tax return with five income tax returns every year – 4 submitted every 3 months and one final return which will be the same as the current income tax return.
If you run a partnership, sole trader business or are a landlord with turnover above £10,000 you will have to comply with new rules.
This comes on the tail of Making Tax Digital for VAT.
When does it come into effect?
According to HMRC MTDIT comes into effect in 2023-24. However, most HMRC IT systems end up missing their stated implementation dates by multiple years due to poor internal performance by HMRC.
What do I need to do?
Nothing until you know for sure that HMRC will meet their deadline which, if their track record is anything to go by, is unlikely.
Once the new system actually comes into place you will no longer be able to keep your records using a paper of basic spreadsheet package. You will have to use formal accounting software such as Xero or buy an Excel add-on which allows you to submit these returns using Excel. All of your business’ data will have to be stored digitally in future.
You will then have to make 4 smaller tax payments on account throughout the year instead of having one large bill to pay in January.
You should be warned that this is coming, but you don’t need to do anything until it becomes more clear whether HMRC are actually going to meet their timetable.