Who will the MTD for income tax requirements be applicable to?
As indicated in our July 2022 MTD announcement, the obligation to keep records in a digital format and report information quarterly will apply to unincorporated businesses and property landlords with gross income from all business activities in excess of £10,000 a year.
HMRC have proposed that those businesses with turnover below the £85,000 VAT threshold will only need to report the totals of income and expenditure each quarter which will be a welcome simplification for small businesses.
Which details do businesses and property landlords need to report under MTD?
HMRC are currently consulting on the precise details of what needs to be reported each quarter. As expected, it seems the accounting software will need to record and report income and expenditure in the same categories currently used for self-assessment. The main categories are:
- Turnover / gross rents
- Costs of goods sold
- Materials
- Wages and salaries of employees
- Sub-contractor costs
- Rent, rates, power and insurance
- Repairs and renewals
- Professional fees
- Telephone and other office costs
- Interest on bank and other loans
- Motor and travel expenses
What software do I need for reporting income tax under the MTD guidelines?
Businesses operating MTD for VAT may already have ‘functional compatible software’ for income tax purposes but will need to get into a new routine for income tax reporting.
The changes will be more significant for property landlord businesses, most of whom are not VAT registered and so have not already been through MTD for VAT.
Remember that HMRC will charge a penalty of up to £400 for every VAT return that a business files without using ‘functional compatible software’.
Our in-house Digital Client Expert can help
If you believe you need a new digital accounting system for your business, there are a number of MTD compliant accounting software packages on offer and there are even relatively low-cost software packages specifically designed for property rental businesses. At LWA, our inhouse Digital Support expert, Bradley Allen-McKenna is available to help and advise you on the software package that is most appropriate for your business.
If you are an unincorporated business or a have a property rental business and concerned about your compliance, please contact Bradley on 0161 905 1801 or you can email bradley@lwaltd.com to help ensure you and your business comply with HMRC’s ‘Making Tax Digital’ (MTD) legislation.