Digital Self Assessment is coming to the self-employed!

Fri, 26 Mar 2021 12:10:32 GMT

Explaining what Making Tax Digital is and how it is being expanded to include the self-employed as well as companies.

Making Tax Digital

HMRC are phasing in an initiative, Making Tax Digital (MTD), that will eventually require all businesses and the self-employed to keep digital business records and make all tax returns digitally.

What is Making Tax Digital?

MTD defines HMRCs ambition to modernise the UK tax system.
The aim is to make it easier for businesses and the self-employed to get their tax right and keep on top of their affairs efficiently and effectively.
Businesses and the self-employed are required to keep business records digitally and send HMRC summary information using approved software.

Who is affected by Making Tax Digital?

Since 2019, most VAT registered businesses with a taxable turnover above the VAT threshold of £85,000 have been mandated to keep digital VAT records and send returns using MTD compatible software.
From April 2022 these MTD requirements will apply to all VAT registered businesses.
MTD for Income Tax Self Assessment (ITSA) will apply from April 2023 for businesses, the self-employed and landlords with total business or property income above £10,000 per year.

Making Tax Digital for Income Tax Self Assessment

The self-employed, small businesses and landlords with annual business or property income above £10,000 will need to follow the rules for MTD for Income Tax from their next accounting period starting on or after 6 April 2023.

What is Making Tax Digital for Income Tax?

This requires taxpayers to capture transactions digitally in an appropriate record keeping software.
Requires digital engagement with HMRC via MTD compatible software.
Requires taxpayers to create and submit quarterly updates, for business income and expenditure, to HMRC.
In response HMRC will send an estimated tax calculation based on the information provided, designed to help taxpayers budget for tax.
At the end of the year, any other information that would usually be submitted under Self Assessment can be added using the same software.
For most taxpayers, this digital process will complete the Self Assessment journey.

What Making Tax Digital is not changing for Income Tax?

The deadline for finalising tax affairs and making payments will remain 31 ^st January.
There will still be a need to self assess and declare: ‘complete and correct information to the best of your knowledge’.
Business records will still need to be kept.
Any non-business information that must still be submitted.

Making Tax Digital for VAT

VAT registered businesses with a taxable turnover above the VAT threshold (£85,000) are now required to follow the Making Tax Digital rules by keeping digital records and using software to submit their VAT returns.

VAT registered businesses with a taxable turnover below £85,000 will be required to follow Making Tax Digital rules for their first return starting on or after 1st April 2022.

What is Making Tax Digital for VAT?

Businesses need to keep records digitally on MTD compatible software.
Records need to be kept from the start of the financial year.
Anyone using the service, whether they are mandated or want to join voluntarily, must sign up for it.
MTD does not require additional records to be kept for VAT, but all records must be kept digitally.

What Making Tax Digital is not changing for VAT?

Payment dates and filing dates remain the same.
Business records will still need to be kept.

The CBMP Blog

Digital Self Assessment is coming to the self-employed!