As we prepare for the implementation of Making Tax Digital, it’s useful to know the ins-and-outs of the different stages of this legislation. We recently published an article discussing the first stage of Making Tax Digital – MTD for VAT. Today, we will be covering Making Tax Digital for Income Tax. Although this following stage is not expected to be applied until April 2020 at the earliest, being ready well in advance and keeping yourself up-to-date on any progress will give you the time to fully understand what is required of you and help you feel more prepared for the changes.
Who will Making Tax Digital for Income Tax be relevant to?
Although at present, the legislation for Making Tax Digital for Income Tax is only a draft, it’s good to get a head start on understanding what it’s all about.
MTD for income tax will apply to businesses such as:
- The self-employed
- Those who receive income from property
For those who jointly own a property, HMRC requires each individual to keep digital records for their share of income and expenditure.
There is expected to be an exemption for those with an annual turnover below a certain threshold, but this has not been set yet. Although, £10,000 was suggested during the consultation process and the threshold is anticipated to be for the total turnover from all sources of self-employment and property income.
Who will these requirements not apply to?
The current draft legislation underlines that MTD for income tax requirements will not apply to:
- Trustees of charitable trusts
- Trustees of exempt unauthorised unit trusts
- The underwriting business of members of Lloyds
- Holders of shares in real estate investment trusts
- Participants in open-ended investment companies
- Large partnerships with a turnover of more than £10 million
What will the actual requirements be?
Using MTD-compatible software, businesses will need to keep their accounting records digitally in a software product or spreadsheet. Paper records will no longer be accepted. However, as noted in our previous article on Making Tax Digital for VAT, businesses can continue to keep documents in paper form if they prefer, but each individual transaction will need to be recorded and stored digitally.
Businesses will need to submit information quarterly to HMRC and finalise their tax position after the end of the tax year. Again, these will need to be submitted using MTD-compatible software.
In the draft regulations for Making Tax Digital for Income Tax, it underlines the following will need to be digitally recorded:
- The amount of the transaction
- The date of the transaction, according to the basis used (cash or traditional accounting)
- The categories of transactions into which the transactions fall – these are expected to be the categories that are currently used for the full self-employment and property pages on the Self Assessment tax return (SA103F and SA105)
Click below to learn more about Making Tax Digital:
Want support with the upcoming MTD legislation? K&B Accountancy Group offers the cloud accounting software, FreeAgent in all our monthly packages. FreeAgent is currently working with HMRC to provide MTD-compatible software ready for April 2019. What’s more, our contractor accountants have vast expertise in accounting online and using this software, so join us today and we can guide you through these changes and ensure a stress-free experience.