HMRC has opened a consultation ‘Tertiary legislation for Making Tax Digital for Income Tax’ inviting views on draft legislation for landlords and sole traders under Making Tax Digital (MTD) for Income Tax.
MTD is to be introduced from April 2024 for self-employed businesses and landlords with business turnover above £10,000 ('relevant persons'). General partnerships are to join from April 2025.
The draft legislation in four draft notices, is made under regulations 3, 8,12 and 16 of The Income Tax (Digital Requirements) Regulations 2021 (SI 2021 No 1076).
It sets out the requirements that 'relevant persons' must comply with under MTD for Income Tax which include:
- MTD-compatible software must be used to:
- Keep and preserve business records (business income and expenses) digitally.
- Send quarterly updates of their records to HMRC.
- Submit an end-of-period statement to HMRC.
- Once a digital record has been entered into a software program that forms part of the functional compatible software, any transfer, recapture, or modification of that digital record within the functional compatible software must happen digitally and not manually.
- Relevant persons with turnover under the VAT threshold (£85,000) will only have to submit two figures, total income and total expenses, and confirm their quarterly period start and dates.
- Details of the information that a relevant person with trading income and or/property income over the VAT threshold must provide each quarter includes:
- Quarterly period start date.
- Quarterly period end date.
- Totals of transactions that lead to business trading income and expenditure within specified categories by category e.g. turnover, professional fees, bank charges and interest etc, capital allowance claims.
- Totals of transactions leading to property income and expenditure (splitting out UK and overseas property) within specified categories by category e.g. rents received, property repairs and maintenance, property finance costs (residential and non-residential), capital allowance claims and private use adjustments.
- Totals of transactions that lead to Furnished Holiday Let (FHL) income (split between UK and EEA FHL businesses) and expenditure by category including capital allowance claims and private use adjustments.
- For retailers, a gross daily retail sales digital record will be required which includes:
- All payments as they are received by the relevant person or on their behalf from its own cash-paying retail consumers, including payments by cheque, debit or credit card, Maestro, Visa, or similar electronic transactions and electronic cash.
- The full value of all credit or other non-cash retail sales received by the relevant person or on the relevant person’s behalf. This includes the full value of credit sales, the cash value of payment in kind, the face value of a gift, book and record vouchers received, and any other payments for retail sales including those completed via third-party online sales platforms.
Interested parties can respond to the consultation by emailing
HMRC have advised that they will publish guidance to explain how customers can reflect any accounting and tax adjustments that may be required to reconcile the quarterly submissions to the final taxable profits for the year later in 2022.
Comment
There is potentially an issue if you try to correct data after filings, due to the requirement "Once a digital record has been entered into a software program that forms part of the functional compatible software, any transfer, recapture, or modification of that digital record within the functional compatible software must happen digitally and not manually."
Useful guides on this topic
Making Tax Digital for Income Tax: Data required by HMRC
Making Tax Digital for Income Tax: the schedule and likely categories of information.
MTD: Income Tax Pilot Tool
Making Tax Digital (MTD) for Income Tax. Are you eligible to take part in the MTD Pilot?
MTD: Toolkit for accountants
What is the current timetable for Making Tax Digital (MTD)? How will it work? Which clients will be excluded? What planning needs to be undertaken?
Making Tax Digital: Survival guide (for the self-employed & landlords)
A guide for the many self-employed taxpayers, company owners and property landlords who are unaware of HM Revenue and Custom's radical plans to transform the tax online filing system.
External link
Open consultation: Tertiary legislation for Making Tax Digital for Income Tax
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