Making Tax Digital for Income Tax

16 Dec 2021

The Making Tax Digital regime is based on businesses being required to maintain their accounting records in a specified digital format and submit extracts from those records regularly to HMRC.

It had been expected that sole trader businesses and landlords with business income of more than £10,000 per annum would be required to enter the Making Tax Digital regime for income tax purposes from 6 April 2023. However, HMRC recently announced that this will be deferred until 6 April 2024.

Following the deferral for sole trader businesses and landlords, general partnerships will not be required to comply with Making Tax Digital for income tax until 6 April 2025 and the date other types of partnerships (for example limited liability partnerships) will be required to comply will be confirmed in the future.

Making Tax Digital for corporation tax

HMRC has previously announced that Making Tax Digital for corporation tax will not be mandated before 2026.

Accounting periods that are not aligned to tax years

Aligned to the revised start date for Making Tax Digital for income tax, changes will be made to simplify the rules under which trading profits made by self-employed individuals are allocated to tax years.

The changes mainly affect unincorporated businesses that do not draw up annual accounts to 31 March or 5 April. The transition to the new rules will take place in the 2023/24 tax year and the new rules will come into force from 6 April 2024.

Affected self-employed individuals may retain their existing accounting period but the trade profit or loss that they report to HMRC for a tax year will become the profit or loss arising in the tax year itself, regardless of the chosen accounting date. Broadly, this will require apportionment of accounting profits into the tax years in which they arise.

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