As part of HMRC’s ongoing digital revolution of the UK tax system, Making Tax Digital (MTD) for income tax will apply to all self-employed individuals and landlords with gross income in excess of £10,000 per annum for all accounting periods starting on or after 6 April 2023.

HMRC’s ambition is “to become one of the most digitally advanced tax administrations in the world” with the aim of making the tax system more effective, efficient and easier for taxpayers to get their tax right.

The £10,000 threshold applies to all sources of applicable income under the MTD for income tax rules, therefore if an individual has self-employed income of £6,000 and rental income of £5,000 the MTD rules would apply as total applicable income exceeds £10,000.

Under MTD for income tax, rather than submitting an annual self-assessment tax return as is currently the requirement, taxpayers will be required to submit quarterly updates of their income and expenses in respect of their trading or property businesses.  Following the submission of each update HMRC will produce an up-to-date forecast of the individual’s tax position for the year.  Although this will be a quarterly requirement, taxpayers can submit these updates more frequently if they wish.

HMRC compatible software will need to be used in order to keep digital records and submit the regular updates to HMRC, with the first submission covering the period 6 April 2023 to 5 June 2023.  This initial update is due to HMRC by 5 July 2023, being a much shorter turnaround time than the generous 9 months after the end of the tax year we currently have for annual self-assessment tax returns.  With tax returns for 2021/22 and 2022/23 due for submission by 31 January 2023 and 2024 respectively, the transition period over to MTD for income tax is likely to be a busy period!

At the end of the tax year taxpayers will also be required to submit an end-of-period statement, similar to a tax return, in order to finalise the income and expenditure position for the year and also submit any reliefs and claims along with details of any other income which needs to be declared.

Following the end-of-period statement a final declaration will also be required in order to confirm that the information provided is correct to the best of the individual’s knowledge.

At present there are no plans to amend the way in which the tax is collected by HMRC and this will remain due by 31 January following the end of the tax year.

For further information or help dealing with your tax obligations contact the team at Wells.

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