Despite some delays, the government is pressing ahead with its Making Tax Digital (MTD) strategy. From April 2024, the scheme will be extended to self-employed individuals and private landlords.
Even if you don’t consider yourself a business owner, you are likely to be affected if you make money from property. The sooner you know where you stand the better, so here is our guide to the next phase of MTD.
What is MTD?
MTD is a long-term government initiative to fully digitise the UK’s tax return process. Rather than submitting paper tax returns or filling in an online self-assessment, MTD requires taxpayers to submit quarterly returns using compatible accounting software. HMRC has promised that this will reduce errors and make the process easier for taxpayers.
The scheme began in 2019 when MTD was introduced for VAT. From April 2019, businesses with an annual turnover of £85,000 or more were required to keep digital records and submit a digital VAT return. In April 2022, this was extended to all businesses, regardless of their income.
So far MTD has proved successful, but the real test is yet to come. MTD for ITSA (income tax self-assessment) will extend the scheme to income tax, covering an extra 4.2 million taxpayers. This change was originally scheduled for April 2023 but, due to the disruption of the pandemic, it has been pushed back to April 2024.
Does MTD for ITSA apply to landlords?
MTD for ITSA is wide-ranging. It applies to anyone with an annual business or property income of £10,000 or more. As well as sole traders and partnerships, this also includes landlords.
The new rule applies to your total self-employed earnings, even if only part of this comes from property. For example, if you make £6,000 a year in rent, and a further £5,000 in self-employed income, you will need to register for MTD as the total is more than £10,000.
HMRC will make an exception if there is a good reason you can’t file a digital return. This could be due to age or disability, or if you have a religious belief that prevents you from keeping digital records. In these cases, you will need to contact HMRC directly to apply for an exemption.
What can I do to prepare?
Businesses that meet certain eligibility criteria can sign up for MTD ITSA now. Even if you can’t enrol yet, there are some steps you can take to get ahead of the game
- Choose your accounting software from the HMRC’s list of compatible software packages. Getting a head start on this will give you time to try out a few and decide which is the best fit.
- Begin keeping digital records of any income from your properties. Doing this early will let you get used to the process, and spot any gaps in your system.
- If you are still filing paper tax returns, switch to an online self-assessment. Although this is not the same as registering for MTD, it is a good way to familiarise yourself with HMRC’s online services.
Help is available if you need it
MTD is a big change, and getting it wrong can have serious consequences. HMRC has created a new penalty system for late submissions and missed payments. Although the system is designed to be fairer than the previous one, it can still issue automatic penalties for non-compliance.
Luckily, time is on your side. Using the next two years to familiarise yourself with MTD will save you a lot of hassle in 2024. If you have any questions in the meantime, please ask.