Why is it being introduced?
HMRC say that Making Tax Digital is a new approach that helps customers avoid errors and is designed to make submitting their tax returns easier
When and to whom does it apply?
April 2026: The Self-employed or property owners with a turnover or gross rental income (NOT profit or net rental income) of more than £50,000.
April 2027: The Turnover or Rental Income limit reduces to £30,000.
April 2028: The Turnover or Rental Income limit reduces to £20,000.
What does it involve?
Essentially completing 5 Tax Returns a year. It basically involves reporting your income and expenses digitally every quarter to HMRC with a normal Tax Return completed afterwards. You will be required to submit details of income and expenses electronically every 3 months, with a final return due 10 months after the tax year end.
What does report ‘digitally’ mean in practice?
Making Tax Digital requires you to use software to record accounts and to submit tax updates every quarter. We expect most people with straightforward accounts will use an accounting software like FreeAgent or similar. Some may use a Spreadsheet together with bridging software to complete the quarterly reports.
Businesses can, of course, choose to use more sophisticated software such as Quick books, Sage or Xero. However, we would expect those businesses, for commercial reasons, to be already using these products.
So, I will be filing 5 Tax Returns per tax year?
Yes.
What happens if I make a mistake?
Quarterly updates will be cumulative, so if an error is discovered in a previous submission, it can be corrected the following quarter. (You will also need to correct the underlying digital records).
When is the deadline for filing the final tax return?
A final tax return must be filed by 31 January following the end of the tax year – this has not changed. The final tax return will include any accounting adjustments and also details of interest, pensions, dividends etc
Are there any exceptions?
Only a very limited number based around broadband and computers: We think claims could be made because of your age, a disability, where you live or, you object to using computers on religious grounds – although expect resistance from HMRC to all of these.
Will I have to buy extra software?
Yes, unless you already use an accounting software program
Yes, provided you also use “bridging software”. This electronically takes the details from the spreadsheet and reports them to HMRC: They do not accept any process that involves manually re-keying or ‘cut and pasting’ the figures from a spreadsheet.
I only own one buy to let property with 12 transactions per year – does it apply to me?
Yes if rent received is over £50,000 a year. We are hoping a simple software solution will be available in the next few months.
What about jointly owned property?
The limit is per person, so it is only your share of the rental income that will count towards the limit.
Will the Tax payment dates change?
HMRC say there are no plans to change the current tax payment dates.
I am registered for VAT and submit quarterly returns digitally – will these do for Income Tax as well?
No. You will have to submit both quarterly VAT returns and quarterly Income Tax returns.
Further questions? Please contact us for advice and guidance