Making Tax Digital (MTD) forms a key part of HM Revenue & Customs’ (HMRC’s) strategy to modernise the tax system. Making Tax Digital specifically targets the tax gap that arises from transcription errors; the data required to be kept and submitted remains the same, but it will need to be in a digital format and have a digital audit trail from invoice to tax return. In essence, Making Tax Digital involves compulsory digital record keeping and reporting by taxpayers.
After the initial announcement of Making Tax Digital in 2015, multiple extensions to deadlines, Brexit and a global pandemic, MTD for VAT finally took full effect from 1 April 2021 for businesses above the VAT threshold. Making Tax Digital for Income Tax Self-Assessment is due to be introduced from 6 April 2024 for individuals with gross income from self-employment or property in excess of £10,000. The commencement date for general partnerships is 6 April 2025. The commencement date for more complex partnerships, including limited liability partnerships, is still uncertain.
What does Making Tax Digital for Income Tax Self-Assessment mean for me?
UK individual taxpayers meeting the thresholds will be required to undertake quarterly digital submissions through approved HMRC software. This is in addition to the annual tax return submission by 31 January following the tax year (for electronic filings). At this stage, there is no proposal to change the existing tax payment dates.
All affected taxpayers will need to be registered for Making Tax Digital before April 2024, with the first quarterly digital submission required by 5 August 2024. We will discuss the registration process and what can be done to prepare for Making Tax Digital for individuals, including transitioning to keeping digital records, in future articles.
The introduction of Making Tax Digital for Income Tax Self-Assessment may initially appear as just another administrative requirement, but there are advantages for taxpayers:
- cloud accounting systems can be linked to bank accounts to pull data directly into the system, saving time and reducing the risk of errors;
- data can then be used to assist with business forecasting and cash flow management, enabling taxpayers to make informed real time decisions on their finances.
We are building an integrated digital service to better serve the bespoke needs of each of our clients. This service will not only work within the requirements of MTD but provide additional benefits by pulling in data from multiple sources, displaying that data in an accessible and intuitive form and using data analytics to provide valuable insight.
Shaping the future of the project
Smith & Williamson has been actively working with HMRC, to help shape the future of the MTD project and ensure that it meets the needs and addresses the concerns we have for our clients.
Wish to know more?
Please speak to your usual adviser or one of the contacts listed. We will continue to explain the impact of Making Tax Digital as the project develops, but further information on Making Tax Digital for Income Tax Self-Assessment can be found: here and here.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
Tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. Clients should always seek appropriate tax advice before making decisions. HMRC Tax Year 2022/23.
This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.