Making Tax Digital: Your Basics Guide

Kirsty Young Freelancers, Personal Tax, Tax

No less than 5+ ‘Tax Returns’ a year are coming in 2024. Yes, at least FIVE.

If you are self-employed or a landlord, there are MASSIVE changes coming your way when “Making Tax Digital” comes into play in 2024.

Currently you only usually do one tax return a year for your income tax. From 2024, you will have to tell HM Revenue & Customs about your income much more often.


So when did this all happen?

Back in 2015 the then Chancellor, George Osborne, announced the ‘end of the tax return’ in his Budget speech. What he didn’t quite say is that it would be replaced with a requirement to report far more often!

The snappily-titled Making Tax Digital for income tax self-assessment (MTD ITSA) has been delayed for many years (think Brexit and pandemic). However, it is definitely coming into force from 6th April 2024.

Initially it will only affect Sole Traders (the self-employed) and individuals with property income (right now) earning over £10,000 a year.


What’s required for Making Tax Digital (For Income Tax)

Quite a lot more than you’re required to submit now! From the 6th April 2024:

  • You will have to submit DIGITAL tax returns every quarter. Yes, that’s once every three months.
  • You will also have to produce a ‘End of Period Statement’ once a year. This Statement adjusts for other tax reliefs, etc, not covered in the quarterly returns.


  • You will also need to do a ‘Final Declaration’. This is like a modern digital version of your usual income tax return. It’s even due on the same date, 31st January.

Doesn’t feel like the end of the tax return does it? :- )


Who will Making Tax Digital affect?

The new Making Tax Digital ITSA system will initially affect sole traders and landlords who have a combined GROSS (before deduction) income of £10,000 a tax year. Take note, this is turnover (and/or Gross rents), not profit.

Even if you only own your own property, if you claim tax relief under the Rent a Room Scheme, you need to be careful as gross rents still count.

To calculate your total rental income, you add up all these sources. If the combined income is more than £10,000, you are ‘in’ the MTD system from 6th April 2024.


When do I need to pay my tax?

You will still pay your tax once a year (or twice if you have a ‘payment on account’ to make as well). There are currently no plans to change this.


When do I have to submit returns?

You have to submit for each quarter in line with the tax year:

  • 5th July
  • 5th October
  • 5th January
  • 5th April

Under the current rules, you could choose to use calendar months instead, namely 31st March, 30th June, 30th September and 31st December respectively. You can’t choose any other start dates for your quarters, just these four. You get 1 calendar month to submit each return .


What is the initial MTD income calculation based on?

The initial figures will be taken from your 22-23 income figures from your self-employment and property rentals. This is a little weird in that technically, you might not know FOR SURE if you will be in or out, particularly if you are close to limit. After all, you might not of added up your figures yet, as your 23-24 tax return wouldn’t be due until January 2025! We haven’t yet seen the detail of how this initial transition period will work.

What we do know is that once you are in the system, you’re in. The only way out is if your income falls below the £10,000 limit for 3 years in a row.


Different trades, different submissions

A separate submission is needed for each trade if you have more than one. Let’s say you do Uber on the side, but work on a building site in the main.

You will also have separate submission for any rental income.

If you are VAT registered as well…… you may have yet another one that quarter.


What is actually submitted?

At the time of writing, for businesses on the MTD VAT system and under the £85,000 VAT threshold, what actually ends up being sent to HMRC on a quarterly income tax return is just two boxes’ worth of information:

  • Income
  • Expenditure

If you are over the £85,000 VAT threshold, there are currently up to 14 categories you need to use. These boxes are based on the current tax return headings.

For the MTD ITSA end of period statements and final declaration, it’s more involved. These will take into account different reliefs, income and other information you might normally include elsewhere on your tax return.


How do I submit under the MTD system?

You will need to use digital software. This could be a spreadsheet, although you will need to have some ‘bridging’ software to effectively suck the data out and send to HMRC.

There is currently no planned way to directly report through your HMRC account.


Do I need to do this if I am just starting out?

It depends. There is an odd section in the draft law (at the time of writing) that means after April 2024 you will need to have submitted at least one normal tax return over the £10,000 limit to be ‘mandated’ into the Making Tax Digital rules once they get going.

If you are starting out before 6th April 2024 and will have turnover over £10,000 from your trade or properties, it’s likely you will be ‘in’ from 6th April 2024, based on current draft rules. Otherwise, it is likely voluntary for a while.


BIG caveat – there are still many unknowns

Software providers and experts (at the time of writing) still don’t know all the details for every situation. More detail is coming out at frequent intervals. There is currently a pilot scheme in play for very simple, straightforward affairs.

Never fear, we will bring you more as it develops!

If you already pay VAT, you’ll know that Making Tax Digital is already here for VAT returns. However, the VAT MTD is a different set of rules and returns.


Can my accountant help?

As you can imagine, there is much concern in the accounting industry and business groups about the impact on small business of these changes. We’re also concerned about the demands MTD will place on the accounting profession as business owners look for more help.

The current situation is that many accountancy businesses will not have sufficient details of the scheme and therefore can’t fully work out how they can help.

However, the simple answer will be it’s very likely your accountant will be able to help – speak to them and find out where they are at regarding MTD.

Like it or not, Making Tax Digital is coming. It’s a challenge we all need to deal with, and it’s coming quick!

I’m still confused about Making Tax Digital

If you don’t have an accountant or feel you night need assistance in the future with Making Tax Digital, we’d love a chat about how we can help.