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Making Tax Digital for Income Tax and Quarterly Updates

As well as Making Tax Digital for VAT, HMRC are also concentrating on Making Tax Digital for Income Tax, also known as ‘for Business Tax’ or ‘Quarterly Reporting’.

This is the first big change regarding the information required for a Tax Return and HMRC has had a public pilot running since March 2018. At the moment, the pilot is limited to the following taxpayers:

  • Sole traders with income from one business
  • Landlords renting out UK property (excluding furnished holiday lettings)

If these are the only sources of income, the pilot can be used instead of filing a Self Assessment Tax Return.

How does it work?

As with MTD for VAT, one of the main requirements of MTD for Income Tax is the necessity to keep a digital record of income and expenses. This can still be via a spreadsheet, as long as the data is imported digitally into the software used to send a summary of income and expenses to HMRC.

Under MTD for Income Tax, HMRC expect information to be sent every 3 months and, in return, they will provide an estimate of the tax liability that might be due at the end of the accounting period, based on the information that has been provided to date. At the end of an accounting year, a final report is then submitted confirming the income and expenses of the business. At this point, a claim for allowances and reliefs can also be made and a final tax calculation based on that information can be obtained.

Although there is an obligation to send income and expense information every 3 months, it is possible to send an update to HMRC more often, for example, if a more up-to-date tax estimate is required.

What is TaxCalc doing to help businesses?

We are looking at solutions to make the transition into MTD for Income Tax as seamless as possible and development is already underway. We are keen to develop transactional record keeping as well as a solution for the submission of quarterly updates to HMRC.

Digital Record Keeping A step-by-step guide