Countdown to HMRC Digital Income Tax in 2023

Countdown to HMRC Digital Income Tax in 2023

NOW POSTPONED to 2024: Making Tax Digital postponed until 2024 (taxhelp.uk.com)

HMRC has recently announced the proposed timescale to introduce the next stage of Making Tax Digital (MTD) for Income Tax.

Who does HMRC Digital Income Tax affect?

Previously MTD applied to those that were VAT registered – from 2023 it will expand to include an additional two groups of people:

1) Those with rental income above £10,000 per year. This is per person, so if there is a joint rental property and the individual half share is below £10,000 each then MTD does not apply.

2) The self-employed, with turnover above £10,000 per year.

What is changing for Digital Income Tax?

There are two main changes under MTD for income tax:

Digital records

Most people affected already keep their records digitally through spreadsheets. For them, all that will change is the format of the spreadsheet might require adjustment to ensure it is capturing all the data required and that the required summary total boxes can be accessed each quarter. Spreadsheets should be updated as near as possible to real-time, so perhaps setting aside some time each week to update them if this isn’t done already.

For anyone using manual records, this will unfortunately require changing to either spreadsheets or software to maintain their records from 6th April 2023 onwards.

5 ‘tax returns’ a year instead of 1

At present, there is only one tax return a year required, which summarises all the details for the tax year.

Under MTD for income tax, updates for self-employment or rental income will have to be made quarterly from April 2023 onwards. After the end of the tax year there will then be a final update to include details of all other income and any adjustments to the accounts.

With correctly formatted spreadsheets that are regularly updated, the quarterly returns can be made via electronic links from the spreadsheet to the software I use.

Tax payment dates unchanged

The only thing that is changing is perhaps record-keeping and the frequency of updates sent to HMRC – payment dates remain the same.

For those with payments on account, these will remain at 31st January and 31st July and the balancing payment on 31st January following.

For others, the tax payment date will remain at 31st January following the end of the tax year.

When does Digital Income Tax start?

The changes are introduced with effect from 6th April 2023. Although you may want to think about introducing the updated spreadsheets a few months beforehand to reduce the overlap…

A busy year in 2023

There will be two years to be completed at the same time due to the overlap:

– Firstly, completing the year to 5th April 2023

– Secondly, starting the first quarterly returns for the year to 5th April 2024

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