Making Tax Digital for Income Tax – How to Get MTD Ready

Making Tax Digital (MTD) adverts are all over the TV and radio – and MTD for VAT returns is already in place. But, are you aware of MTD for Income Tax, and how it will affect you? Perhaps you’re unsure because your business is new, or you’ve managed without an Accountant until now?

We will talk you through everything you need to know, from when and how to start filing MTD tax returns, to the benefits of using MTD-compatible accounting software. We also offer discounted software licences to clients, from key names such as QuickBooks, Sage, Xero, and FreeAgent.

Carry on reading to find out more about getting MTD ready, or get in touch today for further advice.

What is Making Tax Digital (MTD) for Income Tax?

From 6th April 2024, MTD for Income Tax will make it compulsory for 4.2 million self-assessed individuals, businesses and landlords to keep digital records with MTD-compatible software and provide digital updates to HMRC – if their annual business or property income is above £10,000. For landlords, this includes furnished holiday lets, commercial property, and even overseas property.

Making Tax Digital will end the need to submit annual tax returns through government gateway (unless you have other sources of income not covered in the submission – get our advice if you’re unsure). Instead, you will need to:

  • Send HMRC quarterly updates from your chosen accounting software, so they have a predicted end-of-year tax liability for you. It should also make it easier to set aside how much you owe in tax.
  • File an End of Period Statement (EOPS) and final declaration with HMRC – in line with the current Self-Assessment filing deadline of 31st January following the tax year end.

Benefits of MTD for Income Tax

Most accounting packages now have MTD compatibility in preparation for the 2024 deadline, and you will experience the following benefits:

  • Digital bookkeeping and tax return submission – integrate your bank account with the software for extraction of income and receipt details, reducing the chance of human error. You can also scan and upload receipts from your phone through mobile apps.
  • Stronger cashflow visibility – get a deeper understanding of your financial position and performance over time, leading to smarter decision-making.
  • Better awareness of the tax you owe – set aside the amount you need to pay in tax, rather than too little or too much.
  • Artificial intelligence (AI) technologies – get access to AI for task automation, so you can spend less time on admin and more time on developing your business.
  • Regular data checks – spot any potential mistakes sooner, and collaborate your software with your accountant’s system for their professional review.

MTD for Income Tax Pilot

HMRC is currently running pilots for Making Tax Digital for Income Tax – with many self-assessed businesses already providing digital updates to HMRC (instead of filing a Self-Assessment tax return). If you meet the criteria, you can sign up for the pilots voluntarily here.

It’s never too early to be prepared – but just be aware that the current go-live date (6th April 2024) has already been pushed back by 12 months, and some of the details relating to implementation may change depending on the pilot outcomes.

Making Tax Digital for Corporation Tax

If you have a limited company, and no self-assessed income, a date for the compulsory use of Making Tax Digital has not yet been confirmed. MTD for Corporation Tax is currently being discussed by government and professional bodies, with updates regarding a pilot scheme to be provided in due course – however, its usage will not be mandated before 2026.

Need Help with Making Tax Digital?

Are you prepared for Making Tax Digital for Income Tax? Do you have the right accounting software in place? We will answer all of your questions, and even give you access to discounted software as a client. Get in touch with our friendly team today – either through our online form, by calling 01743 562430, or emailing hello@mercianaccountants.co.uk.

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