The HMRC introduction of Making Tax Digital (MTD) will impact on all tax payers, with a phased introduction from April 1st this year. Here, we look at how MTD will affect the self-employed.
What It Means
If you are an unincorporated business, which is what most self-employed people count as, you will need to maintain your accounting records in a digital format, either through software or other digital apps. These records will need to be submitted to the HMRC each quarter through your digital tax account, together with an end of year declaration of your total yearly income.
Digital Tax Records
Each transaction will need to be recorded, with the following proposed fields:
- Date of transaction
- Value of transaction
- Category of income or expense
- Deducted amount (or percentage) for expenses
If you are a retailer with a high volume of low value cash transactions, such as a newsagent for example, you’ll just need to record the date, gross takings and income category.
Who Does This Apply To
If your business has an income above £85,000, then you should be registered for VAT and different rules will apply to you – see our previous article here.
If the income for your business is less than £10,000, you will be exempt from these new MTD rules.
For all other unincorporated businesses with incomes between £10k and £85k, MTD will directly impact on your business accounting processes.
When Does This Apply?
You may not be surprised to hear that the deadlines for introducing MTD have been pushed back from the initial timescale. As it stands now, payment of Income Tax and National Insurance for sole traders through MTD has been pushed back to April 2020.
A sole trader, who derives their only income from the business, won’t be required to submit a self assessment tax return.
If You Need Help
Because the deadline for introduction of MTD for the self-employed is over a year away, there is no need to panic now, but it is sensible for you to think ahead and be prepared for the changes which will impact on you. If you do need any help, please don’t hesitate to contact us.