Making Tax Digital (MTD) For Income Tax
The government has recently published further guidance on the implementation of MTD for Income Tax, which is due to come into effect on 1 April 2021.
All self employed and landlords having gross income of £10,000 or more per year would be caught by the provisions of MTD for Income Tax. Under the MTD rules, businesses and landlords would be required to record their business transactions digitally, preferably using accounting software such as Xero, Quickbooks and Sage. Within 30 days of the end of each quarter digital returns will be required to be submitted to HMRC detailing income and expenses. The returns would need to be submitted directly from the accouting software.
For tax year 2022/23 taxable profits would be computed on the current basis, which is based on the accounting period ending in the tax year.
For tax year 2024/25 taxable profits are to be computed based on the 12 months ended on 31 March 2025 or 5 April 2025.
Tax year 2023/24 is a transitional year, in which taxable profits will be computed based on the 12 months accounting period ended in the tax year plus the profits arising in the period from the end of that accounting period until 31 March 2024 or 5 April 2024.
The best way to understand how the transitional years profits will be worked out is to look at the example of a self employed person who prepares his accounts up to 31 December each year.
For 2022/23 the profits to include on the tax return would be those earned in the year ended 31 December 2022. For tax year 2023/24 the profits to include on the self assessment tax return would be those form the 12 months ended 31 December 2023 plus the 3 months to 31 March 2024 (or 5 April 2024). So in that tax year, the tax payer would have 15 months of profit brough into the tax return.