Making Tax Digital: What does it mean for sole traders from 2024

Making Tax Digital (or MTD) is the UK Government’s initiative which aims to simplify the way people pay their taxes online. It is designed to help small businesses and self-employed people who use HMRC services file their returns on time and avoid penalties.

The new system will allow taxpayers to file returns online, pay taxes through direct debit, and receive refunds in real time. It will also provide better information on tax compliance and reduce fraud.

What is Making Tax Digital for Income Tax?

This would mean that people who file their taxes digitally would no longer need to print out paper forms and send them off to HM Revenue & Customs (HMRC). Instead, they could simply log onto HMRC’s website and submit their data through the system. This new legislation by the government comes into effect on 6 April 2024.

What are the benefits of MTD for Income Tax?

The government wants to simplify the way we pay our taxes. It wants us to use digital methods so that we don’t need to carry around piles of paper receipts. Making Tax Digital (MTD) makes life simpler for everyone involved.

  • The capacity to preserve digital records and electronically file tax returns, eliminating human error.
  • Increased cash flow visibility.
  • More knowledge of how much tax you owe, so you don’t keep away more money than necessary, and vice versa.

Who will be affected by MTD for Income Tax?

MTD for Income Tax will redefine how millions of individuals, including sole proprietors, landlords, and, ultimately partnership partners, conduct their taxes.

However, it will only apply to people who earn more than £10,000 from their companies or properties. If your income from these sources is less than £10,000, you can continue to use the current Self Assessment procedure.

This level is based on gross revenue or turnover rather than profit, and it applies to total gross income if you have more than one trade or property firm.

What should I do under the new changes?

If you are a self-employed company owner and/or landlord who is subject to Making Tax Digital for Income Tax, you must do the below step beginning April 6, 2024.

Keep digital records of your company’s profits and spending.

Send quarterly updates of your company income and costs to HMRC for each form of revenue (self-employed business or property).

Finalize your company revenue by filing an end-of-period statement (EOPS) and a final declaration for each source of income.

Making Tax Digital for Income Tax Deadlines

MTD for ITSA will be implemented on April 6, 2024, therefore you have until then to obtain the appropriate software and join up.

You must pay your MTD for ITSA tax bill by January 31st of the next tax year. So, for the fiscal year 2024/25, you must pay your tax obligation on or before January 31, 2026.

You must ensure to send the quarterly data of your income and expenses to the HMRC at the end of the respective quarter.

Still, have some doubts? Book a free consultation with us and get it answered.

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