On 23 September 2021 HMRC issued a policy paper on the extension of Making Tax Digital (MTD) to the self-employed and landlords with income more than GBP 10,000 in a tax year, with effect from April 2024. The MTD programme requires businesses to submit returns electronically using accounting software that can connect to HMRC’s systems.
Under the proposed changes, businesses and landlords using MTD for Income Tax Self-assessment (ITSA) will need to keep records of their income and expenditure digitally and send a quarterly summary of income and expenses, and an end of year report, using MTD compatible software. The software should be MTD enabled, to receive information from HMRC digitally via HMRC’s Application Programming Interface (API) platform.
Businesses, self-employed people and landlords whose income from trading and property income is above GBP 10,000 in the tax year will be required to operate MTD from 6 April 2024 for income from these sources that is chargeable to income tax, and for Class 4 self-employed national insurance contributions. They will be required to keep their records digitally for this purpose, providing digital quarterly updates and their self-assessment tax return information through MTD compatible software.
The UK government estimates that the measure will affect around 4.2 million unincorporated businesses, individuals and civil society organisations whose trading and property income is more than GBP 10,000. This includes an estimated 2.6 million self-employed individuals, around 1 million landlords, more than 250,000 partnerships and around 380,000 businesses that derive income from various sources including self-employment and property.
Background
Currently the only part of MTD in operation is MTD for VAT which came into effect from 1 April 2019. This requires VAT-registered businesses above the relevant threshold to submit their VAT returns using MTD-compatible software and to keep the relevant records digitally.
On 21 July 2020 the UK government outlined its plans for extending MTD. From April 2022 compulsory MTD for VAT will cover all VAT-registered businesses. HMRC notes that over a quarter of VAT-registered businesses below the VAT threshold have voluntarily chosen to join MTD for VAT.
On 12 November 2020 HMRC published a consultation document concerning MTD for corporation tax (CT). Under MTD for CT all entities within the charge to corporation tax would be required to keep digital records; use compatible software to provide quarterly summaries of income and expenditure; and send in an annual corporation tax return using the software. A voluntary pilot scheme for MTD for CT would be launched in April 2024, and the scheme would become compulsory from 2026 at the earliest.
