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If you’re a business owner or landlord with gross self-employment and property income in excess of £10,000, you‘ll be required to keep income and expense records digitally and to submit records directly to HMRC using MTD compatible software. Rather than filing one self-assessment tax return, you’ll submit six submissions to HMRC per year, which will potentially require more time and resource than before. If you have other sources of income, such as investment income, foreign source income or capital gains, these will all be captured in the final declaration. Click here for more information on the submissions required if MTD for income tax is mandated from April 2024.
Unsurprisingly, this will come at a cost. HMRC estimates that the transitional costs alone will cost businesses in the UK £1.383 billion, with additional annual tax compliance costs of £152 million a year. Most of the additional costs will be borne from additional professional fees, as businesses look for guidance and advice on how to prepare for this significant change and complete the submissions.
The costs of preparing and complying with MTD are not the only potential costs to be aware of. HMRC is introducing a new penalty regime alongside MTD, with a points-based system that penalises those with persistent compliance issues. You should therefore ensure you’re prepared ahead of time, to mitigate the risk of starting the new compliance system with a black mark on your record.
If you’re a sole trader already complying with MTD for VAT, you shouldn’t see much change in your record keeping when it comes to MTD for income tax. However, other sole traders and landlords should start planning for the transition now to ensure MTD compliance and to avoid any penalties. The best way to get started is to:
When you get paid in cash you should use software to record the transaction digitally in a spreadsheet or bookkeeping software. Also, avoid piling up stacks of receipts and instead start getting into the habit of scanning in and saving those travel or office expenses, ready for each quarterly submission. We recommend that you do this before the end of the current tax year so you are familiar with digital record keeping well ahead of the implementation of MTD for income tax.
If you have multiple trades, or a trade and a rental property with different accounting periods you should look to align these to reduce your future reporting requirements under MTD for income tax. For example, if you have a sole trade with the year end 31 March and a rental property which you report on a UK tax year basis (to 6 April), you should look to change the accounting periods to the same end date to avoid the additional four quarterly submissions if your tax years are not aligned.
HMRC is currently running a very limited MTD for income tax pilot and learning from the implementation of MTD for VAT to help prepare for a full roll out. If you’re a UK resident sole trader with one business, or a landlord with UK property income, you are eligible for the pilot. If you have income from any other sources, you’re unable to join currently. By joining the pilot, you’ll benefit from first-hand experience with the new “real time” tax system and ensure you are ready ahead of it MTD for income tax being mandated for all. If you are interested in joining the pilot please get in touch below and we will add you to the waiting list. We are hoping to join the pilot later this year and there will be no additional costs for this service for existing clients.
With the ambiguity surrounding much of MTD and delays to its integration, it’s easy to become complacent with the preparations that need to be made. While this is some time away, preparing now will ensure you face a smooth transition and minimise costs down the line. For more information on the above or advice tailored to your situation, please fill out the form below and one of our experts will be in touch to discuss your requirements and how we can help.
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