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Making Tax Digital guide for sole traders and landlords

By
Elliott Jones

If you are a Sole Trader or a Landlord, with an annual business or property income of more than £10,000 you will have to ensure you are ready to comply with MTD regulations from 6th April 2023.

New reporting timeline and requirements

Under the new MTD system, you will no longer be required to send in the usual annual Self-Assessment tax return. Instead, you will need to submit quarterly updates to HMRC no later than their specified quarterly deadline, which is one month after the end of the quarterly period on which you are reporting. HMRC will automatically update its calculation of your income tax after each of your returns have been sent. 

HMRC will refer to this as your ‘digital journey’.

You will also need to provide an ‘End of Period’ Statement and a Final Declaration.  

This may sound like a huge amount of extra work, but because the software you will be using will record all the relevant information, it is more like to save your valuable time.  

The End of Period statement (EOPS) will need to be with HMRC no later than 31st January following the tax year, which is the same as with Self-Assessment. It will summarise your information and make any corrections or changes from earlier quarterly reports.  

You will be able to view the final estimate of your income tax liability, and you will also need to send a Final Declaration that you have given HMRC all the information required and that you agree with their tax estimate. 

This Final Declaration should also be with HMRC no later than 31st January after the tax year.  

Your income tax will still need to be paid as before, by 31st January following the end of the tax year, and with any payments on account by 31st July of the current year.

Use MTD compliant software for your business records.

You will need to record all of your business transactions on software which can link to HMRC’s MTD system. These will include incoming bills, invoices you have raised, business expenses, mileage records and income and expenditure. If you are a Landlord, it will also include income from property you own. In preparation for each quarter’s reporting deadline, you will need to add up these various headings, using the categories you will find on the short form of the Self Employment tax return, and then submit this information digitally to HMRC before the quarterly deadline.  

HMRC have issued guidance on the kind of software which is available, and you can check via the link below. Although HMRC does not recommend any particular product or provider over another, all the software listed has been through their recognition process. Some will have features which are particularly helpful to people with special needs, for example, those with limited movement or visual impairment. 

Some free versions are available, but most will require payment. 

https://www.gov.uk/guidance/find-software-thats-compatible-with-making-tax-digital-for-income-tax

If you are currently using accounting software which stores information in the Cloud, this system will be updated on a regular basis and will be MTD compatible. Other companies providing accountancy software such as Sage or Quickbooks have also confirmed they will be MTD compliant.  

Traditional desktop accounting systems will need to be updated in good time for you to become accustomed to the new way of working. If you prefer to carry on using Excel spreadsheets, you can acquire Bridging Software. This is a digital tool which is used to send the relevant information from a spreadsheet to HMRC and can either be accessed each time you submit a return or embedded within your own system.  

MTD Income Tax ‘Pilot’ programme 

In February 2020 HMRC launched a pilot programme for MTD for Income Tax. It’s an optional programme for UK residents already registered for Self-Assessment and (either or both) sole traders with income from one business, or landlords who have income from UK property.

You are not eligible to sign up to the pilot if you are a non-UK resident, or you have had any of the HMRC grants for Coronavirus – for example, under the Self Employment Income Support scheme.

https://www.gov.uk/guidance/sign-up-your-business-for-making-tax-digital-for-income-tax

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