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Making Tax Digital

Making Tax Digital (MTD)

(MTD) is part of the government’s ongoing plan to ensure all taxpayers use software for accounting and reporting that relates to tax.

Accounting records must be kept electronically (using accounting software or on a spreadsheet) and be filed quarterly with HMRC. The records must provide details of income and expenditure along with any other information specified by HMRC. 

A final end of period return will then be submitted after the tax year ends to complete the individual’s tax reporting.

Although the frequency of reporting is to change, the timing of tax payments will not and the current system of payments on account by 31 July and balancing payment by 31 January after the tax year should remain in place.

What records need to be kept and submitted to HMRC?

Making Tax Digital

Accounting records must be kept electronically (using accounting software or on a spreadsheet) and be filed quarterly with HMRC. The records must provide details of income and expenditure along with any other information specified by HMRC. 

A final end of period return will then be submitted after the tax year ends to complete the individual’s tax reporting.

Although the frequency of reporting is to change, the timing of tax payments will not and the current system of payments on account by 31 July and balancing payment by 31 January after the tax year should remain in place.

Penalties

To align with the introduction of MTD for ITSA in 2024, a new penalty regime is being introduced for Income Taxpayers required to use MTD in the tax year beginning in April 2024. For all other Income Tax taxpayers, the new penalty regime will be introduced in the tax year beginning in April 2025.

Each late submission of a return will result in a point. The penalty to pay is summarised in the table beside.

A £200 fixed penalty will be applied for each omission where the points threshold has been exceeded. The threshold for quarterly ITSA is four points. All points expire after a 12 month period, provided return obligations are met.

Days Late

Penalty Amount

1-15 Days

Nil

16-30 Days

2% of tax due

Over 31 Days

4% of tax due plus 4% per annum

 

 

Penalties

To align with the introduction of MTD for ITSA in 2024, a new penalty regime is being introduced for Income Taxpayers required to use MTD in the tax year beginning in April 2024. For all other Income Tax taxpayers, the new penalty regime will be introduced in the tax year beginning in April 2025.

Each late submission of a return will result in a point. The penalty to pay is summarised in the table beside.

A £200 fixed penalty will be applied for each omission where the points threshold has been exceeded. The threshold for quarterly ITSA is four points. All points expire after a 12 month period, provided return obligations are met.

Days Late

1-15 Days

Nil

15-30 Days

2% of tax due

Over 31 Days

4% of tax due plus 4% per annum

What should you do?

If you are a sole trader or a landlord and your income exceeds £10,000 from your businesses, you will need to be ready for MTD for ITSA by April 2024. If you are a sole trader and your trading period does not match the tax year, you will need to make arrangements to switch by April 2024. Get in touch today and we can discuss what we can offer to make the transition as smooth as possible.

Making Tax Digital

What should you do?

If you are a sole trader or a landlord and your income exceeds £10,000 from your businesses, you will need to be ready for MTD for ITSA by April 2024. If you are a sole trader and your trading period does not match the tax year, you will need to make arrangements to switch by April 2024. Get in touch today and we can discuss what we can offer to make the transition as smooth as possible.

Making Tax Digital

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