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    Tag: Making Tax Digital

    Reminder: 10 key tax changes coming in the 2026/27 tax year

    Posted on by Rebecca Campbell

    The 2026/2027 tax year brings significant shifts in the UK’s fiscal landscape. While some changes were flagged in previous Budgets, April 2026 will see a number of important reforms take effect, impacting business succession, digital compliance, and operating costs.

    As April approaches, here’s a reminder of the tax changes businesses and individuals need to be aware of:

    1. Caps on APR and BPR for IHT

    From 6 April 2026, Inheritance Tax (IHT) relief for Agricultural Property Relief (APR) and Business Property Relief (BPR) will be capped at a combined £2.5 million per individual. Any assets above this threshold will receive 50% relief, resulting in an effective 20% IHT rate. Spouses and civil partners can transfer allowances, allowing up to £5 million in relief for a couple. This change increases the importance of succession planning. Business owners and individuals should therefore review Wills, consider lifetime gifts, and assess asset structures to ensure reliefs are fully utilised.

    2. Business Asset Disposal Relief (BADR) rate rises

    Capital Gains Tax (CGT) on exiting a business continues to increase. From 6 April 2026, the rate for qualifying disposals under BADR rises to 18%, up from 14% in 2025. The £1 million lifetime limit remains. However, the higher rate means a gain of £1 million will now attract a £180,000 tax bill, compared with £140,000 prior to 2025. Business owners and individuals planning disposals should carefully consider timing and structure to manage this increased cost.

    3. Making Tax Digital (MTD) for Income Tax

    MTD for Income Tax becomes mandatory in April 2026 for self-employed individuals and landlords with gross income over £50,000, with that threshold then reducing to £30,000 from April 2027. Affected taxpayers must maintain digital records and submit quarterly summaries of income and expenses to HMRC via compatible software, replacing the traditional annual tax return. Ensuring your systems and records are MTD-compliant is essential.

    4. Dividend tax rate increases

    Dividend tax rates rise by 2% from April 2026. The basic rate increases from 8.75% to 10.75%, and higher rates rise from 33.75% to 35.75%. With the tax-free dividend allowance remaining at £500, director-shareholders may need to review profit extraction strategies to mitigate the impact of higher rates. The additional rate of 39.35% for those with incomes over £125,140 will remain at this level and will not be increased by 2%.

    5. IHT on AIM-listed shares

    Shares listed on the Alternative Investment Market (AIM) will no longer qualify for 100% BPR. They will receive 50% relief, creating a permanent 20% IHT liability on death. This change significantly alters estate planning strategies for these holdings, and business owners and individuals should review their investments to assess the impact.

    6. Employee costs

    Above-inflation increases to National Minimum Wage rates will take effect from April 2026, raising employment costs across the board. Businesses should review budgets and payroll forecasts, while individuals managing staffing or freelance arrangements should plan accordingly.

    7. Business incorporation relief

    Businesses converting to a corporate structure will no longer automatically qualify for incorporation relief. Taxpayers must actively claim relief on their Self Assessment return to defer Capital Gains Tax, making timely, professional advice essential.

    8. Removal of the working from home allowance

    The £6 weekly working from home allowance will end from April 2026. Previously, this allowed employees to claim homeworking costs without receipts and has been popular in professional services. Employers and individuals working from home will need to adjust expense policies accordingly.

    9. Business rates for retail and hospitality

    New rateable values for non-domestic properties take effect on 1 April 2026, potentially altering bills for many businesses. Lower multipliers will apply to retail, hospitality, and leisure properties under £500,000, while higher multipliers will apply to properties over £500,000.

    10. Expanded EMI share option scheme

    EMI share options have been expanded to benefit a wider range of SMEs. Companies with up to 500 employees (up from 250) and gross assets up to £120 million (up from £30 million) can now offer tax-advantaged share options. Employees can hold unexercised options for up to 15 years (up from 10), potentially making this a valuable tool for attracting and retaining key employees.

    Assessing the impact on your business and finances

    These changes will affect how businesses and individuals pass on value, extract profits, stay compliant, and manage finances. With the reforms coming into effect from next week, reviewing your affairs and seeking professional guidance is essential to avoid unexpected costs and make the most of the 2026/2027 tax year.

     

    HMRC to introduce new penalty points system in 2026

    Posted on by Rebecca Campbell

    From 2026, HMRC is replacing the longstanding automatic fines for late tax filings with a penalty points system as part of its Making Tax Digital (MTD) reforms. The aim is to make late-filing sanctions more proportionate and fairer by distinguishing between occasional ‘slip-ups’ and persistent non-compliance.

    What’s changing

    Under the current regime, missing the 31 January Self Assessment deadline triggers an automatic £100 fine, which can escalate quickly with daily and longer-term penalties.

    Under the new system:

    • Each missed deadline earns a penalty point
    • A £200 fine is charged for each late submission once a set points threshold is reached
    • Points accumulate against each filing obligation and can expire after 24 months or reset after a period of good compliance

    This is designed to penalise repeated late filing rather than isolated errors and give taxpayers a clearer path to correct behaviour.

    Points thresholds

    The number of points required before a fine is charged depends on how often you file:

    • Annual returns: penalty at 2 points
    • Quarterly updates (MTD): penalty at 4 points
    • Monthly returns: penalty at 5 points

    For example, missing two annual obligations within two years would trigger a £200 penalty under the new regime.

    Rollout timeline

    • Pilot phase (early 2026): HMRC is already trialling the points system with a group of taxpayers as part of MTD voluntary testing.
    • First rollout from 6 April 2026: Applies initially to sole traders and landlords with income over £50,000 who must join MTD for Income Tax.
    • Full rollout from 6 April 2027:  The system extends to all self-assessment taxpayers

    Importantly, HMRC will provide a soft landing in the first year: penalty points will not be charged for late quarterly updates for the initial year of MTD for Income Tax implementation, giving taxpayers time to adjust.

    What this means for taxpayers

    If you are self-employed, a landlord, or otherwise subject to Self-Assessment:

    • One occasional late submission won’t necessarily hit you with immediate fines
    • Repeated late filings still lead to penalties – and a £200 fine will be incurred for each late submission once the points thresholds are reached
    • Good digital record-keeping and calendar discipline will be even more important

    Filing regularly using MTD-compatible software and meeting deadlines remains the most effective way to avoid penalty points altogether.

    Stay prepared

    From 2026, late filing penalties will be based on accumulated points rather than automatic fines. While this makes the system fairer for occasional slip-ups, repeated missed deadlines can still trigger financial penalties.

    Now is the time to review your filing processes, ensure your records are MTD-compliant, and put a plan in place to avoid points building up.

    Our team can help. Whether it’s assessing your current compliance, setting up effective digital record-keeping, or providing ongoing support, we can guide you through the changes and help you stay penalty-free. Get in touch to arrange a 1-1 discussion by emailing enquiries@pmm.co.uk.

     

    First Making Tax Digital for Income Tax mandation letters issued by HMRC

    Posted on by Rebecca Campbell

    Sole traders and landlords who submitted their 2024/25 Self Assessment tax return by the end of August 2025 will soon receive the first notifications from HMRC, confirming that they must comply with Making Tax Digital (MTD) for Income Tax from April 2026.

    Who needs to comply with MTD for Income Tax?

    You’ll be required to join MTD for Income Tax from April 2026 if your 2024/25 tax return shows gross income from self-employment and/or property exceeding £50,000.

    HMRC will be sending out official mandation letters to those taxpayers to inform them that they must follow the new digital reporting rules.

    Understanding your responsibilities

    Even though HMRC is issuing mandation letters, it remains your responsibility to:

    • Check whether you fall within the scope of MTD for Income Tax from April 2026
    • Sign up for MTD for Income Tax when required

    If you believe you meet the criteria but haven’t received a letter, you should still register for MTD.
    If you’re unsure, our team of MTD experts can help you determine whether you fall under the requirements.

    When are the letters being sent?

    • November 2025: The first batch of mandation letters is now being issued to those who filed their 2024/25 tax return by 31 August 2025.
    • February–March 2026: HMRC will send letters to those who file their returns between September 2025 and January 2026.

    Towards the end of November 2025, HMRC will also send “prompt letters” to unrepresented taxpayers who haven’t yet filed their 2024/25 tax return. These letters act as a reminder of the upcoming April 2026 start date, based on information from 2023/24 tax returns.

    What the letters include

    Both mandation and prompt letters explain:

    • What’s required under MTD for Income Tax
    • Who needs to comply from April 2026
    • How to prepare and sign up

    Each letter also contains a QR code linking to further guidance and resources from HMRC.

    Get in touch

    If you fall under the scope of Making Tax Digital and aren’t sure where to start – or haven’t yet ensured you’ll be compliant from April 2026 – get in touch with our MTD experts.

    We’ll talk you through your options and next steps.
    📧 Email: enquiries@pmm.co.uk

    Nearly 3 million taxpayers to join Making Tax Digital – are you ready?

    Posted on by Rebecca Campbell

    HMRC’s latest figures reveal that nearly 3 million individuals with self-employment or property income will be required to comply with Making Tax Digital for Income Tax (MTD for ITSA) between April 2026 and April 2028.

    At PM+M, we understand that MTD can feel daunting for businesses and landlords alike. With deadlines approaching, now is the time to prepare — and we’re here to make the transition seamless.

    The phased rollout of MTD

    HMRC is introducing MTD gradually, based on income levels:

    • From April 2026 – Anyone with self-employment or property income above £50,000 must keep digital records and submit quarterly updates. This affects around 864,000 taxpayers.
    • From April 2027 – Those with income between £30,000 and £50,000 join the scheme, bringing in an additional 1,077,000 taxpayers.
    • From April 2028 – The final group, with income between £20,000 and £30,000, will be included, adding 975,000 more taxpayers.

    By the end of the rollout, around 2.9 million individuals will be within the scope of MTD ITSA.

    Who will be affected?

    HMRC data shows that large numbers of people will be drawn into MTD as thresholds lower:

    • More than 600,000 self-employed individuals and 260,000 landlords have income between £20,000 and £30,000 – they will join in 2028
    • Around 800,000 self-employed individuals and 182,000 landlords fall within the £30,000 to £50,000 band – they will be required to comply from 2027
    • Over 600,000 self-employed individuals, 118,000 landlords, and 141,000 people with mixed income already earn above £50,000 – meaning they are first in line from 2026

    This illustrates the scale of the change: it’s not just high earners, but also smaller businesses and landlords who will be affected.

    The digital readiness gap

    One of the biggest challenges is that many taxpayers are still unprepared for digital tax reporting:

    • 65% of those in scope currently use an authorised agent (such as an accountant)
    • Among taxpayers without an agent, 83% do not use software to submit returns
    • By contrast, most represented clients already use software – meaning those without professional support are the least prepared

    Why you should act now

    With nearly three million people moving to MTD, waiting until the deadline could put you at risk of non-compliance, unnecessary penalties, or administrative headaches. Transitioning early gives you time to:

    • Get comfortable with digital record-keeping
    • Adopt MTD-compliant software
    • Ensure you’re submitting updates correctly and on time

    How PM+M can help

    We provide tailored solutions to make your MTD journey stress-free:

    • Software setup + training – we’ll recommend and implement the right digital tools for your business
    • Quarterly submissions – we can manage updates directly with HMRC, keeping you compliant
    • Ongoing support – from troubleshooting software to tax planning, our expert team is here year-round

    Whether you’re a sole trader, landlord, or running a small business, we’ll ensure you stay ahead of the curve.

    Join us at our MTD drop-in days

    To help you prepare, we’re hosting two free drop-in days where you can speak directly with one of our MTD specialists about any queries you may have – no appointment needed.

    Thursday 25 September – Blackburn office (New Century House, Greenbank Technology Park, Challenge Way, Blackburn, BB1 5QB)

    Tuesday 30 September – Bury office (First Floor, Sandringham House, Hollins Brook Park, Pilsworth Road, Bury, BL9 8RN)

    Both sessions run from 10am to 4pm. Throughout the day, our team will be on hand to answer your questions on how MTD for ITSA will affect you, what digital records you’ll need to keep, the software options available, and how to make the transition to cloud accounting as smooth as possible.

    These events are open to everyone – whether you’re a sole trader, landlord, or part of a finance team – so feel free to drop in for a brew and a chat.

    Don’t leave MTD until the last minute

    The shift to digital tax reporting is one of the biggest changes in decades. With phased deadlines already set, the sooner you act, the smoother the process will be.

    Contact PM+M’s MTD experts today to discuss how we can help you transition to Making Tax Digital with confidence. Email enquiries@pmm.co.uk for more information.

     

    Event spotlight: Making Tax Digital for Income Tax Self Assessment

    Posted on by Rebecca Campbell

    PM+M are delighted to be presenting at the EnterprisingYou event on all things Making Tax Digital – advising trading businesses on the new changes to digital tax and self assessment.

    If you’re a sole trader, landlord, or part of a small business preparing for the upcoming changes to Income Tax Self Assessment, this event is for you. The government’s Making Tax Digital (MTD) initiative is rolling out new digital tax reporting requirements, and from April 2026, those with annual income over £50,000 will need to comply.

    Join Rosie Cooper, director in the cloud accounting team at PM+M, for a comprehensive session hosted by GM Business Growth Hub’s EnterprisingYou in partnership with Rochdale Development Agency, Bury Council, and Oldham Council. Find out everything you need to know about transitioning smoothly to MTD for ITSA and avoid costly penalties.

    Why should I attend?

    • Get clear on who MTD for ITSA affects and key deadlines
    • Discover how to move from traditional to cloud accounting software
    • Hear real-life success stories on scaling businesses with digital tools
    • Ask your specific questions during an interactive Q&A

    Who is it for?

    • Sole traders looking to streamline tax reporting
    • Landlords needing to understand new income reporting rules
    • Finance teams adapting to digital tax systems
    • Micro, small, and medium enterprises preparing for MTD compliance

    When and where?

    Date: Thursday 17 July 2025
    Time: 9:30AM – 12:00PM
    Location: Fire Up, Maclure Road, Rochdale, OL11 1DN

    Book your place

    Late penalties for MTD non-compliance are increasing – making it more important than ever to get ahead of the changes. This fully funded session (for eligible Greater Manchester businesses) will equip you with the knowledge and tools to stay compliant and confident.

    👉 Click here to register your place

    HMRC to reform Self Assessment penalty system

    Posted on by Rebecca Campbell

    From 2026, the current standard £100 fine for late filing of Self Assessment tax returns is due to be changed to a points-based system for self-employed individuals and landlords with a turnover above £50,000.

    HMRC have confirmed that the penalty system will be reformed in order to curb the abuse of the Self Assessment system and support taxpayers who genuinely make an occasional mistake.

    The proposed penalty reforms for paying tax late will be based on the length of time the tax is outstanding, meaning the earlier the overdue payment is made, the lower the penalty charge will be.

    The points-based system will be beneficial for those who only occasionally miss deadlines. For example, if an individual misses a self assessment deadline, they will initially be given one point, with a financial penalty only being charged once a set number of points has been reached. This approach recognises that taxpayers who infrequently miss deadlines should be encouraged to comply with filing obligations, rather than immediately being charged a penalty. Instead, the new penalty regime will penalise the minority who persistently miss filing and payment deadlines.

    Although the reforms already apply for VAT, following the government decision in December 2022 to give businesses more time to prepare for Making Tax Digital (MTD) for Income Tax, the changes are now due to come in from April 2026.

    Get in touch

    If you would like to discuss the Self Assessment penalty system changes in more detail, please speak to your usual PM+M adviser or email us at enquiries@pmm.co.uk.

    MTD for ITSA deferred for 2 years

    Posted on by Helen Buchan

    The treasury has confirmed that there will be a delay of 2 years to the timetable for Making Tax Digital for Income Tax Self-Assessment. Due to come into effect from April 2024, this deadline has now been pushed to April 2026.

    This is welcome news given the overwhelming calls from tax and accounting bodies that the IT structure simply isn’t ready for implementation yet. However, it does mean it’s another movement of goalposts which makes it difficult for businesses and landlords to plan ahead with any degree of certainty.

    The full adjustments announced to the scope and timing of MTD for ITSA include:

    • The 2-year delay until April 2026 for mandatory MTD ITSA filing
    • Minimum income reporting level increased to £50,000, with those earning more than £30,000 mandated to join the scheme in 2027
    • The situation for landlords and sole traders earning less than £30,000 will be reviewed
    • Partnerships will not be brought into MTD for ITSA as previously planned in 2025
    • Points-based penalty system will be extended to MTD ITSA filers when they join

    The minister wrote, “The government understand businesses and self-employed individuals are currently facing a challenging economic environment, and that the transition for MTD for ITSA represents a significant change for taxpayers, their agents, and for HMRC.”

    They have allowed more time to prepare, “so that all businesses, self-employed individuals, and landlords within the scope of MTD for Income Tax, but particularly those with the smallest incomes, can adapt to the new ways of working.”

    The full statement can be read here.

    However, there has been no confirmation as to whether this is likely to impact the basis period reform for the self employed and partnerships. The timing of this was originally aligned to fit in with the start of MTD for ITSA in April 2024 to get everyone onto a real time, tax year basis of profit reporting.

    We will keep you updated on any further changes and how these may impact you.

    Get in Touch

    If you have any questions in relation to MTD for ITSA, please get in touch with your usual PM+M adviser or email enquiries@pmm.co.uk.

    HMRC confirms MTD penalties from 1 November

    Posted on by Rebecca Campbell

    HMRC is reminding businesses that from Tuesday 1 November, the soft-landing penalty waiver for Making Tax Digital for VAT will be removed, and existing online accounts for submitting VAT returns will not be available.

    All businesses that file their VAT returns monthly or quarterly must sign up to Making Tax Digital (MTD) and use MTD-compliant software to keep their VAT records and file their VAT returns.

    HMRC can charge a penalty of up to £400 for filing a return which is not an electronic submission from 1 November 2022.

    The amount businesses may be fined is dependent on their turnover. A penalty applies to each return filed incorrectly, and the penalty will be:

    • £100 if turnover is below £100,000;
    • £200 if turnover is between £100,000 and £5,600,000 inclusive;
    • £300 if turnover is between £5,600,001 and £22,800,000 inclusive; and
    • £400 if turnover is £22,800,001 or above.

    Even if a business currently keeps digital records, they must check their software is MTD-compatible and sign up for MTD before filing their next return.

    If a business is already exempt from filing VAT returns online, or if the business is subject to an insolvency procedure, they will automatically be exempt.

    Get in touch

    If you have any questions in relation to becoming MTD compliant, including reviewing your current VAT procedures, guiding you towards a suitable solution, assisting with quarterly submission to HMRC and even providing training for your team, please contact your usual PM+M adviser or get in touch with Jill Morris using the button below.

    MTD for ITSA Questions and Answers

    Posted on by Helen Buchan

    What does MTD for ITSA stand for?

    MTD for ITSA stands for Making Tax Digital for Income Tax Self-Assessment.

    What is MTD for ITSA?

    Essentially, it’s a fundamental change to the way personal tax information must be reported to HMRC.

    What will change when MTD for ITSA becomes compulsory?

    It will require digital record keeping and digital submissions, through your own software, of income and expense information on a quarterly basis, followed by an End of Period Statement (EOPS).

    Who will MTD for ITSA impact?

    MTD for ITSA will impact all taxpayers with a gross income of £10,000 or more from self-employment and/or property rental.

    When will the changes come into force?

    It is due to become compulsory in April 2024.

    Are there any exceptions to the changes?

    Trusts, estates, trustees of registered pension schemes and non-resident companies.

    General partnerships that earn more than £10,000 per year and have only individuals as partners (April 2025) and all other partnerships at a future date to be confirmed.

    Businesses exempt from MTD for VAT will also be exempt from MTD for ITSA and there will be digital exclusions available for some individuals.

    Do I need to do anything now?

    Whilst April 2024 may seem quite some time away, considering the changes and making adjustments to the way you record your income and expense information now could make your life much easier in the long run.

    How do I keep a digital record?

    The digital record keeping requirement will mean taxpayers will have to use an accounting-MTD software package to record all the financial transactions for the period.  This software will then prepare the quarterly returns and end of period statement.  A submission will be made via the software by a digital link to HMRC.

    How will the reporting requirements work?

    For each trading or property business, a quarterly report of income and expenses will need to be submitted. The first of these quarterly updates will be due for filing by 5 August 2024, and will cover either the quarter ended 5 July 2024, or 30 June 2024 (where a calendar quarter election is in place).

    Separate quarterly updates will be required for each trade or category of property business but there is no requirement to make tax or accounting adjustments to the information provided in quarterly updates.

    An end of period statement, EOPS, for each business is required and effectively replaces the tax return for those income sources.

    The EOPS will cover the tax year (regardless of the accounting period of the business) and will be due for filing by the normal self-assessment deadline of 31 January following the relevant tax year. All property businesses must use the tax year as the accounting basis period, but trades can use any accounting period.

    The MTD ITSA regime will incorporate all the reporting required on the current self-assessment tax return into a ‘finalisation’ or ‘crystallisation’ statement. This statement will bring together all the information included in the MTD reports, plus other taxable income, such as investment and employment income, to calculate the tax liability for the tax year. This will be due by 31 January after the end of the tax year.

    This is in total 6 reports that need to be filed with HMRC – 4 x quarterly reports; 1 x EOPS; 1 x tax return.

    Other considerations

    There are lots of changes coming and it is important that you are equipped with the information needed and well prepared to implement the required changes before they become compulsory. Our dedicated MTD for ITSA team are perfectly positioned to support you and your business, and will be happy to chat through how the changes are going to impact you. Get in touch by emailing enquiries@pmm.co.uk or calling 01254 679131.

    A comment to note that the article does not constitute personalised advice and that advice should be sought before taking any action.

    Making Tax Digital for Income Tax Self-Assessment

    Posted on by Helen Buchan

    Making tax digital for income tax Self-Assessment (MTD-ITSA) will become compulsory from April 2024 and whilst this may seem quite some time away, considering the changes and making adjustments to the way you record your income and expense information now could make your life much easier in the long run.

    What is MTD-ITSA?

    Essentially, it’s a fundamental change to the way personal tax information must be reported to HMRC.

    It will require digital record keeping and digital submissions of income and expense information on a quarterly basis, followed by an annual statement. As mentioned, it is due to become compulsory in April 2024 for taxpayers with gross income of £10,000 or more from self-employment and/or property rental with the following exceptions:

    • Trusts, estates, trustees of registered pension schemes and non-resident companies
    • General partnerships that earn more than £10,000 per year and have only individuals as partners (April 2025) and all other partnerships at a future date to be confirmed

    Businesses exempt from MTD for VAT will also be exempt from MTD for ITSA and there will be digital exclusions available for some individuals.

    Record keeping

    The digital record keeping requirement will mean taxpayers will have to use an accounting-MTD software package to prepare the quarterly returns and end of period statement.

    Reporting

    For each trading or property business, a quarterly report of income and expenses will need to be submitted. The first of these quarterly updates will be due for filing by 5 August 2024, and will cover either the quarter ended 5 July 2024, or 30 June 2024 (where a calendar quarter election is in place).

    Separate quarterly updates will be required for each trade or category of property business but there is no requirement to make tax or accounting adjustments to the information provided in quarterly updates.

    An end of period statement, EOPS, for each business is required and effectively replaces the tax return for those income sources.

    The EOPS will cover the tax year (regardless of the accounting period of the business) and will be due for filing by the normal self-assessment deadline of 31 January following the relevant tax year. All property businesses must use the tax year as the accounting basis period, but trades can use any accounting period.

    The MTD ITSA regime will incorporate all the reporting required on the current self-assessment tax return into a ‘finalisation’ or ‘crystallisation’ statement. This statement will bring together all the information included in the MTD reports, plus other taxable income, such as investment and employment income, to calculate the tax liability for the tax year. This will be due by 31 January after the end of the tax year.

    In addition to MTD-ITSA there will also be changes to the tax year basis of assessment with transitional rules being introduced in 2023-24 under basis period reform for self-employed individuals and partnerships. If you are affected by basis period reform, this is something we can discuss further and assist you with.

    There are lots of changes coming and it is important that you are equipped with the information needed and well prepared to implement the required changes before they become compulsory. Our dedicated MTD-ITSA team are perfectly positioned to support you and your business, and will be happy to chat through how the changes are going to impact you. Get in touch by emailing enquiries@pmm.co.uk or calling 01254 679131.

    A comment to note that the article does not constitute personalised advice and that advice should be sought before taking any action.

    Making Tax Digital for Income Tax Self-Assessment: a basic guide

    Posted on by Rebecca Campbell

    Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) brings a fundamental change to the way personal tax information must be reported to HMRC.

    It will require digital record keeping and digital submissions of income and expense information on a quarterly basis, followed by an annual statement. It is due to become compulsory in April 2024 for taxpayers with gross income of £10,000 or more from self-employment and/or property rental with the following exceptions:

    • Trusts, estates, trustees of registered pension schemes and non-resident companies
    • General partnerships that earn more than £10,000 per year and have only individuals as partners (April 2025) and all other partnerships at a future date which is to be confirmed

    Businesses exempt from MTD for VAT will also be exempt from MTD for ITSA and there will be digital exclusions available for some individuals.

    Record keeping

    The digital record keeping requirement will mean taxpayers will have to use an accounting-MTD software package to prepare the quarterly returns and end of period statement.

    Reporting

    For each trading or property business, a quarterly report of income and expenses will need to be submitted. The first of these quarterly updates will be due for filing by 5 August 2024, and will cover either the quarter ended 5 July 2024, or 30 June 2024 (where a calendar quarter election is in place).

    Separate quarterly updates will be required for each trade or category of property business but there is no requirement to make tax or accounting adjustments to the information provided in quarterly updates.

    An end of period statement (EOPS) for each business is required and effectively replaces the tax return for those income sources.

    The EOPS will cover the tax year (regardless of the accounting period of the business) and will be due for filing by the normal self-assessment deadline of 31 January following the relevant tax year. All property businesses must use the tax year as the accounting basis period, but trades can use any accounting period.

    The MTD for ITSA regime will incorporate all the reporting required on the current self-assessment tax return into a ‘finalisation’ or ‘crystallisation’ statement. This statement will bring together all the information included in the MTD reports, plus other taxable income, such as investment and employment income, to calculate the tax liability for the tax year. This will be due by 31 January after the end of the tax year.

    In addition to MTD for ITSA, there will also be changes to the tax year basis of assessment with transitional rules being introduced in 2023-24 under basis period reform for self-employed individuals and partnerships. We are yet to receive detailed guidance from HMRC on the practicalities of the reform.

    Get in touch

    Making Tax Digital is bringing lots of changes, but we are perfectly positioned to support you and your business before the official launch in April 2024. Prepare now and overcome any challenges with the transition to digital before the new rules come into force. Get in touch to discuss MTD for ITSA in more detail by emailing enquiries@pmm.co.uk.

    Making Tax Digital for VAT: a basic guide

    Posted on by Rebecca Campbell

    In November 2020, HMRC announced that Making Tax Digital (MTD) rules will be mandatory for ALL VAT-registered businesses with a taxable turnover below £85,000 from their first return on or after 1 April 2022.

    Are you compliant?

    In this blog, we cover the basics to help you get a better understanding and be more confident about MTD for VAT.

    What is Making Tax Digital?

    Making Tax Digital is part of a wider government initiative to make tax administration more efficient and effective. MTD replaces manual tax administration with two things:

    • An online system where you can submit VAT returns (with MTD compatible software)
    • The digitisation of business records

    You can read more about the scheme here.

    What records do you need to keep digitally?

    As part of the rules, businesses will be required to keep a record of all accounting transactions digitally – handwritten records are no longer acceptable.

    If you use a scheme you may be required to keep additional records:

    • Retail Scheme: total daily gross takings
    • Flat Rate Scheme: items that VAT can be reclaimed on

    Although all your transactions must be archived digitally, you are not required to scan additional records like invoices or receipts.

    Finding the right software

    Compatible VAT record keeping software connects to HMRC systems.  It must be able to:

    • Keep and maintain digital records specified in the regulations
    • Prepare VAT returns using these records
    • Communicate with HMRC via a digital link

    You can check your software, or find a compatible product here, If you are considering changing your accounting software we will be happy to guide and assist you.

    Linking software

    If you find that you need to link your software packages (e.g., if you use more than one software or if you are maintaining them using spreadsheets), you can use a digital link. But what does a digital link comprise of?

    HMRC highlight the following:

    • Data is electronically transferred between software programmes, products, or applications. This may include using a formula to link cells in spreadsheets (e.g., where cells are linked by using a formula in one sheet that mirrors the source’s value in another cell)
    • The transfer is automatic (data cannot be manually moved between software or copied over by hand i.e., copy and paste).

    Exemptions

    For those who are unable to keep digital records of a business or use digital tools to submit VAT returns (may be impractical due to age, disability or location), you can ask HMRC for an exemption from MTD and follow the guidance in Section 3.4 of Notice 700/22.

    Get in touch

    If you have any questions in relation to becoming MTD compliant, (including reviewing your current VAT procedures, guiding you towards a suitable solution, assisting with quarterly submissions to HMRC and even providing training for your team), our team of digital experts in the PM+M cloud team can help! We have already helped hundreds of businesses become compliant – read some of our client testimonials by clicking here.  To find out more, get in touch with Jill Morris by clicking the button below.

    Making Tax Digital for VAT – are you prepared?

    Posted on by Rebecca Campbell

    From 1 April 2022, ALL VAT-registered businesses must comply with Making Tax Digital for VAT.  In our latest blog, we highlight some useful tips and reminders for those of you who still need to prepare.

    What is Making Tax Digital for VAT?

    Making Tax Digital for VAT (MTD) forms part of a wider government initiative to make it easier for individuals and businesses to get their tax right – simplifying the process. MTD aims to transform tax administration so that it is more effective and more efficient.

    Who is affected?

    VAT-registered businesses with turnover above the VAT threshold of £85,000 have been required to follow the Making Tax Digital for VAT rules since April 2019. From 1 April 2022, all VAT registered traders, including smaller businesses with turnover less than the threshold must adhere to the rules.

    Examples of businesses which may be affected from April include those who are trading below the VAT registration threshold, those that make zero-rated supplies, on which no VAT is charged, or businesses who are only VAT registered to recover VAT they incur.

    You may be able to apply for an exemption from MTD for VAT if you are unable to use a computer or access the internet due to age, disability, or remote location. If this applies to you, an application must be submitted by contacting HMRC.

    What information must be kept digitally?

    As part of the new rules, you will be required to keep a record of all your accounting transactions digitally. This means that handwritten records are not acceptable any longer.

    You may already keep these records digitally, however, the difference with MTD is that you must use a compatible software package to submit your VAT return.  You will not be able to log on to HMRC and enter your VAT return figures on line.

     What is compatible software?

    Compatible VAT record keeping software connects to HMRC systems and allows you to store and update records like receipts and VAT invoices digitally.

    It must be able to:

    • Keep and maintain digital records specified in the regulations
    • Prepare VAT returns using these records
    • Communicate with HMRC via a digital link

    Do I need to register for MTD for VAT?

    You can sign up for MTD online, but you must have compatible software in place before you register.

    To sign up, you will need:

    • Your business email address
    • Government Gateway user ID and password
    • VAT registration number
    • Latest VAT return

    New VAT penalty regime

    A new VAT penalty regime, which was due to come into force on 1 April 2022, has been deferred to January 2023. Read more about the new penalties for late submission and payment penalties in our recent blog.

    Is MTD only for VAT?

    At the moment, YES.  The next stage in the government’s plans for a digital tax system will be a change for Income Tax.  Self-employed business owners and landlords with annual business or property income above £10,000 will need to follow the rules for Making Tax Digital for Income Tax from 6 April 2024.

    Get in touch

    If you have any questions in relation to becoming MTD compliant, (including reviewing your current VAT procedures, guiding you towards a suitable solution, assisting with quarterly submission to HMRC and even providing training for your team), please contact your usual PM+M adviser or get in touch with Jill Morris using the button below.

    Making Tax Digital for Income Tax delay confirmed     

    Posted on by Rebecca Campbell

    Today, HMRC have confirmed a delay to the introduction of Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA). The government will now introduce the digitalisation of income tax a year later than planned, in the tax year beginning April 2024.

    General partnerships are not required to join the MTD for ITSA until the tax year beginning in April 2025.

    According to HMRC, the purpose of the extension is to give those individuals who are required to join the scheme more time to prepare, as well to allow more time for additional customer testing in the pilot, which is currently taking place.

    MTD for ITSA will be a requirement for businesses with an income over £10,000 per annum. Those eligible for the scheme will have the opportunity to sign up to the pilot scheme, as it is extended during 2022/23 and 2023/24.

    This delay has also had a knock-on effect on the plans to introduce basis period reporting for the self-employed and partnerships, which is currently out for consultation and has come in for some criticism due to the rushed nature of the original time scale.

    In recognition of these concerns, these changes will not come into effect before April 2024, with a transition year not coming into effect earlier than 2023. The government will respond to the consultation in due course providing the next steps.

    Read more on the Gov.uk website by clicking here.

    Get in touch

    If you have any questions in relation to becoming MTD compliant, please get in touch with your usual PM+M adviser or email enquiries@pmm.co.uk