HMRC has released more details on how buy-to-let landlords and sole traders with qualifying income over £10,000 will be affected by Making Tax Digital for Income Tax. Read below to find out what these details are and how they might affect you.
MTD for income tax
HMRC has revealed that a new income tax framework will become mandatory from April 6 2024 for all buy-to-let landlords and sole traders who have qualifying income over £10,000. This is being brought in to coincide with MTD for income tax and will replace self-assessment tax returns. Anyone who qualifies for MTD for income tax will instead have to submit their non-qualifying income through the Personal Tax Account system. Submissions will be quarterly and the deadline for end-of-year statements will be 31 January.
How does this affect me?
HMRC will get in contact with you directly to let you know if you fall under these MTD for income tax rules. They will work it out using data from your previous self-assessment tax returns, calculating qualifying income.
The deadline for businesses with annual income from property or self-employment with profits over £10,000 to follow MTD rules is April 2024. You will only have to start doing this sooner if you decide to sign up for the test phase of the MTD ITSA which is taking place now. You may opt for this to get used to the new system and learn how your processes for managing MTD will work.
What is qualifying income?
Qualifying income is defined as the combined income that you get in a tax year from property income and self-employment sources. HMRC assesses this and then deducts expenses to work out your gross income or turnover.
All other sources of income (for example, from employment, savings or dividends) do not count towards qualifying income. However, money from these sources still needs to be reported using MTD-compatible software. Not all MTD-compatible software has this functionality as it is a new system that is still being developed. In this case, you can report this type of income using your HMRC online services account.
Get in touch
For help with understanding how MTD for income tax works and getting your internal systems in order for these changes, get in contact with the specialist accountants in Melton Mowbray at SRB Associates today. We are dedicated to helping SMEs reach their full potential and getting to grips with MTD ITSA early could be the way you do this.