Making Tax Digital or MTD as it is commonly referred to, is a UK Government initiative that was launched in 2015.
The aim was to digitise the tax system by 2021 starting with VAT in 2019 and ultimately bringing an end to self-assessment by April 2021.
Pressing priorities of Brexit has caused a number of setbacks to the roll-out of MTD.
Although a firm date has yet to be given by HMRC, all guidance so far indicates that implementation of the new legislation will come into force by April 2021, although for individuals whose income is below the threshold will be exempt from the MTD legislation.
Currently, businesses can sign up to the MTD Income tax Pilot with HMRC rather than leave it to the last minute to sign up (when a deadline is announced)
Now is an ideal time to begin a switch to digital bookkeeping software as it will allow time to get used to the new system before it becomes mandatory.
How MTD Income tax will work?
It will apply to the self-employed, partnerships and Trusts and anyone who receives money from property.
There are discussions that an exemption will apply to those with an income below a certain threshold, possibly £10,000 total turnover from all sources of self-employment and property. An exemption might also apply to larger partnerships with a turnover exceeding £10 million.
Under the new rules, an income tax report will need to be submitted to HMRC every three months, with a final return submitted at the end of the tax year. This will also require payment of each quarterly return to be made to HMRC, as an advanced payment of income tax.
There is some support being given by the technology sector which offers a free version of their software for individuals to use and send data to HMRC. Apari.co.uk is one such company.
As more information is being released by HMRC over the coming weeks, we will continue to post updates.
If you already use a cloud or PC based software to record your bookkeeping and accounting transactions, then your software suppliers will be updating their systems shortly, to ensure that they comply with HMRC regulations and reporting mandates.
If you use spreadsheets, there may well be API 'bridging software' that becomes available, as happened with MTD VAT, with the introduction of an add on called 'Vital Tax' for excel spreadsheets.
If you have any queries or concerns or simply want to know if you need to take any action to make your business compatible, please get in touch with us