Making Tax Digital, the UK’s initiative to modernise the tax system is continuing to transform the way individuals and businesses handle their tax affairs. VAT-registered businesses already have to contend with the scheme and MTD for income tax is the next upcoming change.
If you’re a landlord or a self-employed individual, you might be affected by the changes in a matter of years, so make sure to read this so you can properly prepare.
Understanding MTD for income tax
MTD for income tax is a part of the UK government’s initiative to make the tax system more efficient, effective and easier for taxpayers. Specifically, it requires individuals and businesses who usually file self assessment tax returns to keep digital records of their income and expenses, and submit quarterly updates to HMRC using certain types of software.
The primary goal of MTD as a whole is to reduce errors in tax submissions and help taxpayers get their tax right the first time. While it was first introduced by George Osborne in 2015, there’s been no indication that the new government will do away with it. In fact, Labour’s plan to close the tax gap champions digitisation of the tax system.
MTD for income tax will introduced in two phases:
- from April 2026, for those with qualifying income over £50,000
- from April 2027, for those with qualifying income over £30,000.
It is unclear when MTD for income tax will be introduced for partnerships, but the government website says that “the government remains committed to the future introduction of MTD for ITSA to partnerships”.
So, there’s still some time to prepare for the changes. But what can you do to get ready before then?
Choosing compatible software
MTD requires businesses and individuals to use software that is compatible with HMRC systems to automatically send data to the tax authority. The software must be able to:
- create and store digital records of business income and expenses
- send quarterly updates
- submit your tax return by 31 January after the end of the year
- receive information from HMRC.
Using online software provides increased efficiency, accuracy and real-time data that you can use to formulate financial strategies. With their automation features, they also alleviate administrative burden, human error and manual processing. They can also forecast your future tax liabilities so that you can properly set aside savings. Online software really can be a game-changer.
How we can help
Navigating the transition to MTD can be challenging, but that’s where we come in. As experts in using HMRC-compliant software, GHLD are perfectly positioned to help you make this shift as smooth as possible. Whether you need assistance with selecting the right software, training on how to use it effectively, or ongoing support to ensure compliance, our team is here to guide you every step of the way. We’ll ensure that you not only meet all MTD requirements but also leverage the full potential of digital tools to streamline your tax processes.
Get used to good record keeping
To comply with MTD for income tax, you’ll need to maintain digital records of all your income and expenses. It would be highly beneficial to get used to doing this so you can work out a system in advance so you get everything right when MTD for income tax is introduced. Here are some practical tips for keeping digital records.
- Digital receipts: Too many people still manually enter data into online software when they don’t have to. Save time by scanning your receipts and invoices and letting your software “read” them for you.
- Regular updates: Don’t wait until the end of the quarter to update your records. Instead, regularly upload your data so you’re not rushing to submit your quarterly updates.
- Categorise expenses: Ensure that all expenses are categorised correctly within your software. This will help in accurate reporting and provide clearer financial insights.
- Back up your data: Regularly back up your digital records to avoid any data loss. Most cloud-based accounting software will do this automatically.
Get used to this way of working as soon as possible so you can get MTD for income tax right from day one.
If you need help understanding or preparing for MTD for income tax, don’t hesitate to get in touch with us. We’ll do what we can to assist you.
