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Wondering what Making Tax Digital (MTD) means for Income Tax? 🤔
Here’s the rundown…
The government is in the process of phasing out paper tax records and switching to a fully digital tax service. Part of that process involves getting small businesses, self-employed workers and landlords to complete their tax records entirely online by using MTD-compliant software.
In April 2022, the first part of Making Tax Digital came into effect for VAT-registered businesses in the UK. The next stage will be Making Tax Digital for Income Tax, which means everyone affected will need to keep digital records of their accounts. They’ll also be required to send quarterly summaries to HMRC, instead of filing one yearly tax return.
The hope is that MTD will make it easier for people to keep track of how much tax they owe in real time – which will also make it easier to budget for your tax bill too!
The Making Tax Digital for Income Tax changes will apply to you if you are either:
If this is you and you currently file a Self Assessment tax return, then MTD for Income Tax will apply to you.
If you earn over £50,000 you’ll need to switch over to MTD by April 2026 and if you’re earning between £30,000 and £50,000 you’ll need to switch to MTD by April 2027.
HMRC still needs to finalise what landlords, self-employed people and businesses (that aren’t VAT registered) earning under £30,000 will need to do in regard to MTD and when.
You’ll need to register and ensure you have MTD-compatible software before the deadline.
Yes, but only for income that you’ve made in the UK.
The deadline for Making Tax Digital for Income Tax is planned for 6th April 2024.
It was originally planned for April 2023, but thanks to the Covid-19 pandemic, the government pushed the deadline back a year – some positive news if you still need to prepare. So, unless the government extends the deadline again, anyone who meets the requirements for MTD for Income Tax will have to follow the new changes from April 2024.
First of all, don’t panic.
You have until April 2024 to get ready for the MTD changes and to find suitable MTD-compatible accounting software. But, if for some reason, you miss this deadline, then it’s important that you understand what happens next.
Thanks to an IT failure, businesses who failed to register for the VAT phase of the scheme (April 2022) got off with a warning and were in fact, actually given more time to prepare. Hurray!
But there’s no guarantee HMRC will be as lenient with the MTD for Income Tax deadline.
Which could mean fines! 😱
After the changes, taxpayers will get a ‘point’ every time their submission deadline date is missed (similar to speeding fines). When you’ve built up a certain number of points, you’ll pay a £200 fine.
Alongside the penalty points system, HMRC is introducing a new late payments penalty system that could see late payers being fined up to 4% of the outstanding amount daily.
None of these new penalties are as harsh as the ones currently in place for submitting a late tax return or tax payment. Phew! 😅
Let’s have a look at how tax preparation has changed over the years!
If you’re self-employed or a landlord and are confused by the recent MTD changes, then don’t worry. Get in touch with us for some simple, one-off tax advice from one of our accredited accountants. You can learn more here.
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