On April 1st 2021, the soft-landing period for Making Tax Digital (MTD) for VAT came to an end. In essence, anyone currently following the rules of MTD for VAT will need to make sure that the software they use sends information directly to HMRC.
This is the first step in a series of incoming tax changes that will impact how you file your tax returns to HMRC.
You have until January 2023 to implement these changes as part of MTD for Income Tax, but the longer you leave it, the harder it will be to adjust.
Don’t take our word for it, though. Mike Parkes of GoSimpleTax sets the record straight on how you should prepare for these changes.
MTD is a government initiative designed to digitalise taxes in the UK.
Going digital makes assessing income more effective, and easier to get your taxes right. It’s better for the economy too – avoidable mistakes have cost the Exchequer £8.5bn between 2018 and 2019, according to HMRC.
The initiative will extend to on-demand drivers with an annual income of over £10,000, starting from 2024.
In other words, you’ll be required to use compatible software to keep digital records and send HMRC updates for your Income Tax.
This will mark the end of the free HMRC tax return submission tool – instead, you’ll need to choose an approved platform that’s compatible with MTD for Income Tax.
Instead of the dreaded Self Assessment tax return, HMRC will ask you to submit:
If you start using software early, you’ll spend less time on admin under this legislation than you did previously.
At least every three months, you’ll need to send HMRC a statement of your business income and expenses, as well as any property income that you earn.
This allows HMRC to present you with a more up-to-date forecast on how much tax you’ll owe.
Software will make this process easy, as you can log income and expenditure information in real time.
You’ll have to submit an end-of-period statement at the end of your accounting period or tax year.
Preparing this statement will involve a similar process to the current one for Self Assessment tax returns.
This is where you confirm that the figures submitted to HMRC are final and correct.
This submission will then be used as the basis to calculate any tax you need to pay.
Self-employed rideshare drivers have until 2023 before MTD for Income Tax comes into effect. If you leave it too late to sign up for approved software, 2024 could turn out to be a difficult year.
Not only would you need to submit your 2022/23 tax return by 31st January 2024 as normal, but you’d also have to get up to speed with MTD for Income Tax before your first MTD submission. This first submission would most likely be for the period April 6th – June 5th period of 2024, and be due no later than July 5th.
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