HM Revenue and Customs (HMRC) has published well needed draft legislation surrounding Making Tax Digital for income Tax self assessment.
The proposals, aimed at sole traders and landlords with annual turnover below the £85,000 VAT threshold, will permit individuals to provide only two figures to HM Revenue and Customs as part of the impending quarterly updates.
Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) will be applicable to all sole traders and property landlords with a minimum annual income of £10,001 from 6th April 2024.
HMRC believes Making Tax Digital will will reduce the risk of human error and ensuring more accurate information on taxable income via digital tax accounts.
According to the proposals, any “relevant person” earning less than the VAT threshold –currently frozen until 31st March 2024 – will be allowed to submit the “total of all income” along with the “total of all expenses” for each quarterly update.
That’s instead of entering the “totals of the amounts falling within each category of transaction”.
Sole traders earning less than the VAT threshold are already permitted to use the three-line account reporting method in the current self-assessment tax return system.
HMRC had previously intimated that three-line accounts would not be applicable within MTD ITSA. However, following ongoing consultations with the wider industry, the return to three-line accounts is designed to benefit time-poor, lower-income sole traders.
The draft proposals are aimed at five categories of professionals working in the UK:
- Self-employed businesses with trade profits
- Self-employed businesses with income via property
- Income via UK based furnished holiday lets
- Income via furnished holiday lets in the European Economic Area (EEA)
- Income via overseas properties
However, sole traders below the VAT threshold will need to wait until HMRC publishes its guidance to get more information about how a three-line quarterly report will work in practice, in particular how tax and accounting adjustments will be handled and the system works as a whole.
Let us support you become Making Tax Digital compliant
If you’re a sole trader or landlord that earns over £10,000 per year, we recommend that you prepare for your MTD ITSA obligations in good time. Your local Tax Assist Accountant can work with you to specify suitable MTD-compliant accounting software for your business and grow accustomed to the digital tax reporting regime before April 2024.
For a free consultation on your MTD ITSA needs, just pick up the phone and call us today .
Alternatively, you can fill out our online enquiry form to outline your situation in more detail.