Your MTD for Income Tax questions answered

The first MTD for Income Tax deadline is fast approaching, and if you're self-employed or a landlord, you probably still have questions.

Do you need to sign up? Does MTD apply to your income? Do you need bookkeeping software? And what happens if you make a mistake?

We recently hosted a webinar for self-employed people, sole traders and landlords, where Taxcalc’s MTD specialist Jason Raynes answered many burning questions. Read on for Jason’s insights.

Question: Does MTD apply to me?

Jason says: If your combined income from self-employment and property was £50,000 or more on your most recent tax return, MTD applies to you now.

It's important to remember that HMRC looks at qualifying income, not profit. For self-employed people, that's your sales or turnover before expenses are deducted. For landlords, it's your rental income before expenses.

Question: What income counts towards the £50,000 threshold?

Jason says: Self-employment income, UK property income and foreign property income all count.

However, employment income, dividends, partnership income and pensions do not currently count towards the MTD threshold. That's one of the biggest areas of confusion he sees.

Question: Do I need to pay tax every three months?

Jason says: No.

The quarterly updates are simply a way of keeping HMRC informed throughout the year. They don't create additional tax payment dates, and they don't mean you're paying tax four times a year.

Think of them as a regular snapshot of your income and expenses rather than a tax bill. You'll still complete a final end-of-year submission as part of the process.

Question: Will HMRC automatically sign me up?

Jason says: No.

If MTD applies to you, you need to register through HMRC. If you've established that you meet the threshold, don't assume HMRC will do it for you.

Question: Do I need bookkeeping software?

Jason says: Not necessarily.

Many people assume MTD means paying for bookkeeping software, but that's not the only option. HMRC requires digital records and compatible submission software, but that software can be a simple bridging solution rather than a full bookkeeping package.

TaxCalc’s MTD Quarterly Filer is exactly this type of solution. Explore how it can help you easily comply. 

Question: Can I still use spreadsheets?

Jason says: Yes.

In fact, this was one of the most popular questions during the webinar.

You can continue using spreadsheets provided you maintain proper digital records. That means recording your transactions and keeping a digital trail from the original transaction through to the figures you submit to HMRC.

TaxCalc's MTD solution is designed around this approach. You can record transactions in a spreadsheet, upload the file and submit the information to HMRC through TaxCalc's bridging solution.

Question: What if I miss a transaction or make a mistake?

Jason says: Don't panic.

Unlike some other HMRC submissions, MTD quarterly updates can be amended. If you discover you've missed something, you can either correct it in a later year-to-date submission or resubmit an updated version with the correct figures.

Question: What if my income drops below the threshold?

Jason says: If you qualified based on last year's income, you'll still need to join MTD and start filing.

However, if your income remains below the threshold in future years, you may be able to apply to HMRC to leave the regime.

Question: My rental property is jointly owned. Does all of the rent count towards my MTD threshold?

Jason says: No. Only your share of the rental income counts.

For example, if a property generates £10,000 in rent and you own 50% of it, only £5,000 would count towards your qualifying income for MTD purposes. This was a question several attendees asked, particularly landlords with jointly owned properties.

Question: If I qualify for MTD this year but my income falls next year, do I still have to file?

Jason says: Yes. If you qualified based on last year's income, you'll still need to join MTD and start filing. However, if your income remains below the threshold going forward, you may be able to apply to HMRC to leave the regime in future.

Question: Can I just put one total income figure and one total expense figure into a spreadsheet?

Jason says: No. One of the biggest misconceptions around MTD is that you can simply add up your income and expenses every quarter and submit the totals to HMRC.

In reality, HMRC requires a digital link between your original records and the figures you submit. That means keeping a record of the individual transactions that make up those totals.

The good news is that a spreadsheet is perfectly acceptable. You don't necessarily need a full bookkeeping package. However, your spreadsheet should contain the underlying income and expense transactions, not just a single quarterly total

Question: What happens if I forget a transaction or make a mistake?

Jason says: Don't panic. MTD works differently to what many people expect.

Because quarterly updates are submitted on a year-to-date basis, a missed transaction can simply be included in a later submission. If you've submitted incorrect figures, you can also submit an amended version with the correct information. In other words, one mistake doesn't mean you've ruined the entire year's reporting.

Question: What's the most important thing to do right now?

Jason says: Know where you stand.

Check whether your qualifying income exceeded the threshold, make sure you're registered if MTD applies to you, and don't leave things until the last minute.

For those affected this year, the first deadline is now very close. The sooner you understand your obligations, the easier the transition is likely to be.

For a bridging solution that will make MTD for IT that little bit easier, check out TaxCalc MTD Quarterly Filer.