Making Tax Digital

Making Tax Digital for Income Tax

The landscape of tax and business regulations is changing, and at Bird & Co, we understand the importance of staying ahead of the curve. If your 2023/24 Self-Assessment Tax Return shows income near or above £50,000, expect a letter from HMRC in April 2025.

From the impending rollout of Making Tax Digital for Income Tax (MTD IT), these changes will impact how you manage your business. This newsletter aims to demystify these updates, providing you with clear, actionable information to ensure you're prepared.

Making Tax Digital for Income Tax (MTD IT): A Simple Guide

Inspired by the government's push for a digitally advanced tax system, MTD IT is the next major step after MTD for VAT. It's designed to streamline tax administration, making it easier for taxpayers to get it right.

What is Changing?

Instead of the traditional annual Self-Assessment tax return, affected individuals will submit quarterly updates of their income and expenses, followed by a final declaration.

Who Will Be Affected?

April 2026: Self-employed individuals and landlords with total income (turnover, not profit) exceeding £50,000.

April 2027: those with income exceeding £30,000.

Individuals with income above £20,000 will be included before the end of this parliament (by 2029 at the latest).

Partnerships and limited companies will follow at a later, yet-to-be-announced date.

What You Need to Do

We are currently exploring available software and endless updates to support these changes, so if you would like further details, please let us know. There is no need to buy expensive accounting software with many features that you may not need. If you already have accounting software, we may be able to help and work alongside that too.

Digital Record Keeping: Start keeping digital records of all business income and expenses.

Quarterly Updates: Submit summaries of your income and expenses to HMRC every three months. Deadlines: 7 August, 7 November, 7 February, and 7 May. If you have to sign up for MTD from April 2026, your first quarterly update will be for the three months ended 30 June (or 5 July) 2026 that has to be submitted by 7 August 2026.

Final Declaration: Complete a final declaration at the end of the tax year, confirming the accuracy of your updates and adding any necessary adjustments.

HMRC Letters and Preparation

If your 2023/24 Self-Assessment Tax Return shows income near or above £50,000, expect a letter from HMRC in April 2025.

Two types of letters will be sent: one for those expected to comply and another for those with turnover between £45,000 and £50,000.

Remember, signing up to MTD IT is not automatic.

Other Key Updates

HMRC Abandons RTI Hours Reporting: HMRC has scrapped plans to require detailed employee hours reporting through RTI, reducing administrative burdens.

Employment Allowance Increase: From April 2025, the allowance will increase to £10,500, and the £100,000 NIC contributions threshold will be removed, allowing more employers to claim.

New Tax Return Requirements: Sole traders starting or ceasing trade and directors of close companies will face new mandatory reporting requirements from April 5, 2025.

Minimum Living Wage (MLW): Please note these increase on 5 April 2025.

Your Partner in Navigating These Changes

We understand that these changes can be daunting. That's why Bird & Co is committed to helping you with software when these changes arrive.

Contrary to some opinion, spreadsheets are digital software and like MTD VAT, bridging software can also be used.

If you have any questions please just get in contact with us!

Disclaimer

The information provided in this article is for general guidance only and should not be considered professional tax advice. Always consult with a qualified accountant or tax advisor like ourselves for personalised guidance.

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