Guide

Making Tax Digital for Income Tax Self-Assessment. Are you ready?

Making Tax Digital for Income Tax Self-Assessment. Are you ready

The government’s purpose behind making tax digital is to set out an electronic system to make it easier for businesses and individuals to keep tax on the top of the affair and get tax right.

Are you ready for it? Or not sure what it means for you?
Here is what you should know.

The Basic Considerations

Under MTD for income tax, people subject to income tax on the profits of their profession, property business, trade, or vocation will need to maintain their accounts electronically— using a spreadsheet or software. They also need to file quarterly returns to HMRC along with the details of their expenditure and income. Besides, they also need to submit any other information specified by HMRC.

Under MTD for income tax, people subject to income tax on the profits of their profession, property business, trade, or vocation will need to maintain their accounts electronically— using a spreadsheet or software. They also need to file quarterly returns to HMRC along with the details of their expenditure and income. Besides, they also need to submit any other information specified by HMRC.

You may see the following changes in the way you store and apply tax returns after MTD:

  • As you will manage account digitally, you will be able to see the complete picture of your tax affairs. This will allow you to manage all your tax liabilities at one go, in the same place.
  • Now, you will no longer have to wait for the end of the financial year to understand how much tax you need to pay.
  • HMRC will obtain and analyse all information affecting tax in almost real-time. This will prevent any repayment or tax due from building up.

Does MTD Apply to Your Business?

The changes mentioned in the MTD is applicable for an extensive range of taxpayers from selfemployed to business people to landlords. It is also applicable for individual taxpayers.

MTD is not mandatory for businesses with annual sales under £10,000. However, they can opt to if they wish for.

Exemptions from MTD

As mentioned above, to be in scope, the total property or business income should be above £10,000 per year. This threshold applies to total gross income and not profit.

Individuals will not have to follow the MTD in the following scenarios:

  • HMRC has announced that it will legislate for an exemption for people who cannot engage digitally due to disability, age, or remoteness of the location. This legislation will be in line with the existing VAT online filing exemptions.
  • The business is run by individuals of a religious society whose beliefs are incompatible with using digital or electronic records.
  • They are subject to an insolvency procedure

In any of the cases as mentioned above, you can apply to HMRC to claim an exemption.

Benefits of MTD

It helps you to:

Understand your tax affair with a complete picture of your business in your digital account.

  • Budget and plan more effectively
  • Have a real-time calculation of the tax you need to pay
  • Save time by having all your tax information in a single piece.