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Making Tax Digital for Income Tax and Quarterly Updates

As well as Making Tax Digital for VAT, HMRC is also planning to implement 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. 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, HMRC has advised that taxpayers involved in the pilot do not need to file 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.

A summary of income and expenses must be sent to HMRC every three months. Using the information that has been sent, HMRC can then provide an estimate of the tax that might be owed at the end of the accounting year. Once the accounting year end has been reached, a final report needs to be sent to HMRC which confirms the income and expenses of the accounting year. At this point, a claim for allowances and reliefs can also be made and a final tax calculation obtained.

Although there is an obligation to send income and expense information every three 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’s TaxCalc doing to help Agents?

We‘re actively working on solutions to make the transition into MTD for Income Tax as seamless as possible. Currently, we’re looking at developing solutions for transactional record keeping and submission of quarterly updates to HMRC. We’re enthused by the changes that Making Tax Digital will bring to our software and we would love to hear from agents who’d like to be involved in future product development.

If you would like to be involved in HMRC’s Income Tax pilot and you would like to be involved in how we will be shaping our MTD solutions, please get in touch with us at mtd@taxcalc.com

MTD for VAT