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Making Tax Digital – Time To Prepare!

28 - 04 - 2025

In just under a year the first sole traders and landlords will be required by law to keep digital records to comply with the requirements of Making Tax Digital for Income Tax (MTD IT).

From April 2026, taxpayers with qualifying trading and property income of £50,000 or more on the 2024-25 tax return will be mandated to join MTD IT. The start date for incomes between £30,000 and £50,000 is April 2027. The Chancellor confirmed in the Spring Statement that MTD IT will be extended to those with income of £20,000 or more from April 2028.

 

This is a fundamental change to the way sole traders and landlords report their results to HMRC and will eventually apply to almost everyone who receives income from self-employment and/or property.

 

To comply with the requirements, mandated taxpayers must:

 

·         Use approved software, apps or spreadsheets to record income and expenditure;

·         Submit cumulative quarterly updates to HMRC by 7^th August, 7^th November, 7^th February and 7^th May each year; and

·         Complete a final annual submission of taxable profit for the accounting period at the end of the year. This will replace the current self assessment tax return.

 

If you do not currently keep digital accounting records, do not worry, as we will be able to help you with the process. HMRC is not providing its own record-keeping software or platform. We will be able to recommend the right commercial software solutions that meet the MTD IT requirements for you.

 

An exemption from MTD IT will be available for taxpayers who are digitally excluded on practical or religious grounds. Some of the reporting rules for quarterly updates have been relaxed to simplify the process for certain categories of taxpayer.

Three-line accounts

Digital records can simply be tagged as either ‘income’ or ‘expense’ rather than specific categories, except for mortgage interest for landlords of residential properties.

Retailers

A single record of daily gross takings can be entered into the digital records, rather than each individual sale.

Jointly-let property

The individual owner can record a single total amount for each category of:

 

·         Property income received during a quarter; and

·         Property expenses incurred during the tax year.

 

We have been preparing to help our clients navigate the changes for some time, so contact us on 01244 625 500 or contactus@foremansllp.com without delay to discuss what you need to do to get your business MTD-ready.

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Fixed Data

Assumptions

General                                                                                                                              

• The user is over 21 and subject to tax in the UK
• The user wishes to minimise their tax liability
• The user is subject to national insurance i.e.he/she is not over retirement age
• Only current tax rates and limits are applied
• No tax mitigation payments are made e.g. pension contributions
• Only 3 digit letter 'L' tax codes shown in the drop down list can be entered 
• The user does not have a turnover greater than £100,000 where fewer reliefs and or higher taxes may apply

Expenses

• All miles claimed as expenses are for business use using a personally owned car or van
• All other expenses claimed are wholly, necessarily and where appropriate exclusively for the benefit of the business

Foremans LLP Charges

• Foremans fees associated with Limited Company, Sole Trader or Umbrella are as per published rates
• Foremans current Service Costs are allowed for in all calculations.

Holiday Pay

• Holiday pay is accumulated week by week by Umbrella or Agency employer but paid out during the year

VAT

• Limited Company or Sole Trader will be VAT registered
• Limited Company or Sole Trader will take advantage of Flat rate VAT
• Flat rate applied includes the benefit of the additional 1% applicable to the first year of VAT registration

Limited Company Conditions

• One director / one shareholder in a Personal Service Company
• Director of Personal Service Company elects to vote for 100% dividend after salary, costs and expenses
• Director's salary is maximum salary to the primary threshold for NI
• The Limited Company is trading normally i.e it is not subject to IR35 and is not a Managed Service Company

NOTES

• The Current tax rates are taken from the Fixed Data Table
• The current Value Added Tax Rate is 20% and is applied to all invoices and expenses as appropriate
• The Director's Salary is fixed in relation to National Insurance thresholds. Higher Rate Taxpayers should consider the advantages and disadvantages of a larger annual salary or bonus
• Higher Rate Taxpayers may wish to consider the advantages and disadvantages of shared ownership of their business
• Users with a tax code other than three digits and letter "L" may telephone or email our Development Department to request a detailed calculation
• Generally the use of an Umbrella rather than an Agency payroll is only efficient if sufficient weekly expenses are allowable and claimed
• The expenses claimed under an Umbrella should not prevent the proper operation of National Minimum Wage