Whilst MTD for Income Tax is not due to come into force until 2024, many questions are being asked already by those getting prepared for the changes now.
Below are our answers to some key questions. If you don’t find the answer to a question you may have, get in contact with us and we will be happy to help.
Q. Will you pay more tax with MTD?
The amount of tax you pay will remain the same (providing you’ve been doing your tax returns correctly). MTD has been introduced to improve the way taxes are calculated and reported.
Q. Must all my accounting be 100% digital?
No. You may still use paper invoices to send to clients and receive paper receipts. However, this information will need to be transferred to your digital accounting software. To keep things simple and save time, we recommend switching to a 100% digital accounting system.
Q. Do I have to use MTD for Income Tax if I am a small business?
If you receive a single or combined income from self-employment or property which is more than £10,000 then yes, you will legally have to use the MTD service. Please note partnership income, salary and dividends do not need to be included in this figure.
Q. Do I have to use the MTD for Income Tax service if I jointly own a property from which I receive income?
If your share of the income is over £10,000 then yes, you will have to use the MTD for Income Tax service.
Q. Who will be exempt from Making Tax Digital for Income Tax
You are exempt if your qualifying income is £10,000 or less.
The following groups are also exempt:
- trustees of registered pension schemes
- non-resident companies
There will also be some exclusions if you are what is known as “digitally excluded” but this will be assessed on an individual basis. You should speak to your accountant if you think this applies to you.
Q. Will I have to submit more data to HMRC under MTD for Income Tax
No. You will not need to submit more data to HMRC but data will need to be submitted more frequently. Reports of your income and expenses will need to be submitted quarterly with the ability to carry out annual adjustments such as tax allowances at the year-end. These will probably be done by your accountant. In addition, you will need to file a final declaration annually and submit details of your other income.
Q. Can I use my current digital accounting system to submit MTD for Income Tax returns?
Any software you use must be MTD compatible to send your returns to HMRC. You can find a list of compatible software providers on the HMRC website. If your current provider is not listed, contact them to ask if they will become compatible by 2024.
Q. Can I sign up for MTD for Income Tax before 6 April 2024?
Yes. You can voluntarily sign up for the service if all the following apply:
- You’re a resident of the UK
- you’re already registered for Self Assessment
- your accounting period aligns to the tax year — for example, 6 April 2021 to 5 April 2022
- you have submitted at least one Self-Assessment tax return
- you’re keeping digital records
- one or more of the following were included in your last return:
- an existing self-employment income
- a UK property source
- a foreign property source
- you’re up to date with your tax records — for example, you have no outstanding tax liabilities
Q. Do I need to have an accountant to use the MTD for Income Tax service
No. Using compatible accountancy software, you can submit the quarterly returns yourself as long as you are confident with your record keeping. We recommend an accountant checks the submissions annually and carries out the tax adjustments for you to ensure you are getting all the tax reliefs available to you. This must be done before the end of period statement is submitted.
Q. If I use an accountant can I send them paper accounts and they do all the work for me?
Yes. If you are not able to keep the digital records yourself an accountant can do this for you. There are ways in which you can do part of the work easily to minimise costs and you should discuss these with your accountant. At Maynard Johns, we help our clients find the right solution to help them and provide training where needed.
Q. How do I learn about moving to digital accountancy?
For support moving your accounting records to digital there are the following options:
- Online webinars and courses
- Gov.UK help pages and guides
- MTD compatible accountancy software companies own training and support
- One-to-one or group training via an accountant such as Maynard Johns.
Q. What if I have specific accessibility issues or disabilities and cannot go digital?
HMRC is working with the MTD Accessibility Working Group and the Additional Needs Working Group and has stated that if a business cannot go digital, it will not be required to do so. A request can be submitted to HMRC to consider an MTD exemption.
Q. How much does MTD-compatible software cost?
Costs will vary across different providers and there are some free providers available. Some banks also include compatible software for free as part of their business banking package. Software costs are tax deductible and will also bring benefits to the business such as improved efficiency and productivity. It is important that you choose the right package for your business.
Q. When should I start preparing for MTD for Income Tax?
The sooner the better. By preparing now you can try different MTD-compatible software providers to see which suits you best, you can learn how to use the software to its full potential, train any staff and start to get into a routine of recording your information.
If you would like help or support with any aspect of Making Tax Digital, get in touch with Maynard Johns Chartered Accountants now. We have a specialist team on hand to advise you.
The information provided is correct at the time of publishing but subject to change. Please ensure you speak to your accountant for up-to-date information as legislation may change.