Income Tax Reporting and the Digital Era
Making Tax Digital (“MTD”) for Income Tax has been talked about for many years now. The idea that the tax return process can be completed by third parties providing all relevant information to HMRC is still a long way off,... Read more
Blog7th May 2021
Making Tax Digital (“MTD”) for Income Tax has been talked about for many years now. The idea that the tax return process can be completed by third parties providing all relevant information to HMRC is still a long way off, but it is the direction HMRC are heading. A pre-populated tax return sounds like a great solution and is what HMRC hope to achieve but there are lots of moving parts.
Currently, HMRC only retrieve details of employment income, benefits and pension income and this is checked against tax returns submitted to HMRC. The intention is that more information is provided directly from third parties, such as bank interest, pension contributions, dividends from UK companies, gift aid donations etc. HMRC would then “pre-populate” individuals’ tax returns and all the individual would be required to do is review and approve their return.
In the longer term HMRC hope that this method improves accuracy for returns and reduces the chance of errors and omissions.
The MTD roadmap set out by HMRC now extends to April 2026 with 6 April 2023 being the date that self-employed individuals or property landlords who have income in excess of £10,000, will need to comply with MTD for Income Tax rules from the start of their next accounting period. For example, if accounts are prepared to 30 April each year, the first accounting period that will fall within the MTD regime will be the year ended 30 April 2024.
HMRC will require individuals to sign up to the MTD service, keep electronic business records, use a software compatible with MTD, provide updated records to HMRC every 3 months, agree to a declaration that the information provided is correct and provide any adjustments at the end of the year and then finally they would require to submit a final declaration as opposed to a Self-Assessment tax return.
Individuals will be excluded from the electronic bookkeeping and filing elements of MTD if they are unable to handle it due to age, disability or location however they will need to satisfy HMRC that they cannot do so before they will agree to the exemption.
Individuals can voluntarily follow the new rules now, however this will be mandatory from 6 April 2023.
It is never too early to prepare for MTD, if you would like any further information please contact Andrea Begg or your usual AAB contact.