Making Tax Digital for Income Tax – MTD
We keep hearing about changes to the tax system commonly referred to as MTD.
What is this all about?
How does it affect you?
The government states that Making Tax Digital is a key part of their Tax Administration Strategy.
This will, over a period of time, apply to all businesses and landlords. It will mean that you will be required to: –
- keep digital records
- use software that is compatible with Making Tax Digital (currently there are only 5 software houses that can offer this)
- submit updates every quarter, bringing the tax system closer to real-time information, making it similar to VAT submissions.
The most significant change that you need to be aware of right now is that from April 2024, all self-employed traders will need to prepare accounts to the new Basis Period to fit in with the Tax Year. The existing Basis Period rules (the Current Year Basis) will be abolished and replaced with the Tax year Basis of Assessment. This applies to all trading income that falls under Income Tax, and includes individuals with a profession or vocation; partners in a trading partnership; other unincorporated entities with trading income, such as trading trusts and estates and non-resident companies with trading income charged to Income Tax, collectively referred to as businesses. This means that if your current year end differs to 31st March or 5th April, you will need to include accounts to cover the additional period to the end of the tax year for 2023/2024.
In 2023/2024, the basis period will be made up of two different sets of figures:
- A ‘standard part’ being the normal basis period (i.e. the 12 months following the end of the basis period for the 2022/2023 and
- A ‘transition part’ running from the end of the standard part to 31st March or 5th April 2024.
For example, if your current accounting period ends on 30/09/2023, then you will need to report actual figures for this period plus an estimation for the period from October 2023 to 31/03/2024 or 5th April 2024. The additional profits running from the end of the current year to the end of the tax year for 2023/2024 will bring the accounts into line with the new Basis Period, the new rule comes into full effect from April 2024 for the 2024/2025 Tax Year.
Steps have been introduced to reduce the impact of this change –
businesses can deduct any overlap relief, (where a change of accounting date has occurred, the new accounting date is more than 12 months from the old accounting date, and the trader has overlap profits which have yet to be offset) from the additional transitional profits and the total remaining profits can then be spread over a period of up to 5 years.
We have matters in hand for our existing clients,but if you want advice as to what you need to do, contact your accountant, if you have one, or you can contact us, to see how this impacts your business.
In the past MTD has been delayed by HMRC on a number of occasions, but this is happening now and delaying having your paperwork and accounts sorted is not an option.
