Making Tax Digital will impact landlords and sole traders next (April 2024)

The Government’s Making Tax Digital initiative (MTD) is currently in its fourth year. HMRC’s desire to become “one of the most digitally advanced tax administrations in the world” is supported by MTD, which aims to help people and businesses “get their tax right and keep on top of their affairs.”

For those who don’t yet know what MTD is, a digital tax account must be set up and quarterly reports must be submitted online using an accounting programme or app that is integrated with HMRC’s digital gateway. This came into force in April 2019, but only when a business’s annual revenue exceeds the VAT threshold of £85,000. Beginning in April 2022, this was extended to all VAT-registered companies with annual sales under £85,000.

In two years, the next phase of MTD will take effect, and it will impact landlords and sole traders. From 6 April 2024, anybody whose combined gross income from self-employment and property exceeds £10,000 per tax year will be subject to MTD for Income Tax (also known as MTD for ITSA).

When a taxpayer has more than one trade or property business, the term “combined gross income” is used as a catch-all term for all their income combined. For instance, if a person made £8,000 in rental income plus £7,000 in sales from a sole proprietorship, they would be £5,000 over the threshold, and so subject to MTD for ITSA.

General partnerships with a taxable income of more than £10,000 will be subject to MTD for Income Tax as of April 6, 2025. When this will be extended to more complex partnerships, such as limited liability partnerships, has not yet been announced by HMRC.

The implementation date for the next stage, MTD for Corporation Tax, is likewise unknown, but HMRC has stated that it will not come into force before 2026.

What you have to do

Businesses and landlords subject to MTD for Income Tax must use MTD-compatible software to give HMRC a quarterly summary of their business income and spending starting on April 6, 2024. These documents must be filed by or before:

• August 5 (for the period 6 April to 5 July)
• November 5 (for the period 6 July to 5 October)
• February 5 (for the period 6 October to 5 January)
• May 5 (for the period 6 January to 5 April)

HMRC will deliver a tax estimate based on the information supplied to assist with tax planning. In addition to the four quarterly summaries, two annual files will be required by HMRC:

• An End of Period Statement to complete the businesses’ sources of income
• A “final declaration,” which clarifies the tax liability and includes additional taxable income (such as savings and investment income)

The 31 January income tax payment deadline will remain in effect for the time being. We anticipate that HMRC will attempt to change the payment timelines to a quarterly payment regime, which is 30 days after the quarterly submission is made, once taxpayers and agents have become used to the new systems and processes. For MTD for VAT and MTD for income tax, late submission fees will be based on a new points-based penalty structure.

HMRC has reported that it is developing a “time-bound” communication plan for MTD for income tax, so we will continue to share details as and when they become available.

If you are unsure whether Making Tax Digital applies to your business, call JW Hinks on 0121 456 0190. Our friendly team of tax experts can help ensure that you are both meeting your tax obligations and not paying more than you need to.