Making Tax Digital for business update – Income Tax part 3 of 4
The announcement made by the Financial Secretary to the Treasury detailed the first concrete steps for Making Tax Digital (MTD) for income tax.
From April 2023 an estimated 4 million unincorporated businesses and landlords with gross income above £10,000 will be required to submit quarterly summaries of their business income and expenses to HMRC using MTD compatible software.
As with Making Tax Digital for VAT, all records submitted to HMRC must be in a digital format.
A pilot study into the effectiveness of this scheme is currently underway, however the scheme is due to be expanded in April 2021 to allow taxpayers to test and familiarise themselves with the system before the April 2023 deadline.
Under the Making Tax Digital for Income Tax scheme information submitted to HMRC will be used to send taxpayers estimated tax calculations to help them budget for their tax. At the end of the tax year the tax return will be finalised using MTD compatible software.
As part of this year end process, additional information will be included to fill out the rest of the tax return. This will include employment income, bank and building society interest, dividends, pension contributions, student loan repayments etc. It is intended that this MTD process will eliminate the need to submit a Self Assessment Tax Return in the normal way.
Given the complexity of the UK tax system it will be interesting to see how well the Making Tax Digital software will manage with the requirements of the UK tax code. If you are interested in testing the system before mandation, please contact your accountant for more information.
We will update you in a future article on the process for signing up to the Making Tax Digital for Income tax pilot.