MAKING TAX DIGITAL (MTD) FOR INCOME TAX: 

What MTD for Income Tax Self Assessment means for you - and how to prepare 

Penney's Accountancy - Your accountants in Farnborough Hampshire
What MTD for Income Tax Self Assessment means for you - and how to prepare

CONTENTS 

1. Are you impacted? 
a. The change in basis period: What this means for you 
b. Key dates for MTD for Income Tax 
c. Self Assessment Tax return vs MTD for Income Tax 
2. MTD for Income Tax: What you need to do 
3. Year 1 and 2 timeline 
4. Preparing for MTD for Income Tax 
5. Benefits of using cloud accounting vs paper records or spreadsheets 6. How we can help you 

1) Are you Impacted? 

Everyone regardless of whether they are employed, self-employed, investor or a business owner needs to tell the government how much money they have earned in a year. Currently, if you do not declare all your income via your employer, you do that via the Self Assessment system. i.e. you complete a tax return each year by the 31st of January each year to declare what you owe HMRC. Under Making Tax Digital for Income Tax this is all changing for sole traders, partnerships, property landlords and unincorporated businesses. 
 
Making Tax Digital for Income Tax will 
apply to you if you earn over £10,000 per 
year as a: 
 
Sole trader or unincorporated business owner 
 
Member of a partnership 
 
Property landlord 
 
Under the new scheme you will be no 
longer submit a self-assessment tax 
return, but be part of Making Tax Digital 
for Income Tax. 

The dates for the switch are:  

2023/2024: Transitional tax year for any  
unincorporated businesses, partnerships or  
sole traders whose year end is not the 5th of  
April 
 
Sole traders, unincorporated businesses and  
property landlords: April 2024 
 
Partnerships: April 2025 
Everyone regardless of whether they are employed, self-employed, investor or a business owner needs to tell the government how much money they have earned in a year.

Are you Exempt? 

Most sole traders, unincorporated businesses and partnerships will not be exempt. There are a few exceptions e.g. 
 
Non-resident companies 
 
Trustees, executors and administrators 
 
Foreign businesses of non-UK domiciled individuals 
 
Digitally excluded individuals or businesses, e.g., if they can’t access the internet from their home 
 
Businesses who are entirely run by practicing members of a religious society whose beliefs are incompatible with using electronic communications or keeping digital records 

1.1 - The change in basis period: What this means for you 

As a sole trader, partnership or property landlord you will  
have a yearly accounting period. This is known as the  
basis period. Normally this aligns to the tax year, i.e.  
it runs from the 6th April to the 5th April. If this is you,  
you can skip this section! 
 
If you use a different basis period, such 
as the calendar year, e.g. from the 1st 
January to the 31st December, you will 
need to switch your accounting period 
to the tax year, i.e. 6th April to the 5th 
April. Many partnerships, particularly 
in professional service firms have their 
year ending on the 30th April. 
 
For partnerships and unincorporated 
businesses which need to change 
their basis period, the tax year 2023/24 
is a transitional year. In this year, the 
business/partnership will need to 
recognise two periods of time for profit 
purposes: 
 
1. The profit on the 12 months’ worth 
of trading beginning with the start of 
the basis period ending in the 
transitional year. 
 
2. The profit from the end of the basis 
period through to the 5th April 2024. 
Previously a partnership/business would have only declared the profits 
for 12 months of trading. This means that your partnership or business 
could potentially need to declare 
nearly 2 years of profit at the end of the transitional year. 

Example 

A partnership/business has a 12-month accounting period ending on the 30th April 2023. Under the basis period change it will be required to move it’s year end to the 5th April. This means in the 2023/24 transitional year it will need to declare the following profits, and be taxed on these: 
 
1. Any profit generated from the 1st May 
2022 to the 30th April 2023. 
 
2. Any profit generated from 1st May 
2023 to the 5th April 2024. 
 
If you will need to change your basis 
period, then please contact us. We 
can advise on sensible tax planning 
strategies and cashflow to minimise 
the impact on your business with the 
change in basis period. 
If you will need to change your basis  period, then please contact us. We  can advise on sensible tax planning  strategies and cashflow to minimise  the impact on your business with the  change in basis period.

1.2 - Self Assessment Tax Return vs Making Tax Digital for Income Tax 

 
Self -Assessment 
Making Tax Digital for Income Tax 
12-month Accounting Period 
Can be anything but normally runs from 6th April to 5th April, i.e. the tax year 
Has to be the tax year, i.e. 6th April to 5th April 
Business Records 
You must keep 5 years of records showing your income and expenditure 
You must keep 5 years of records digitally showing your income and expenditure. Your digital business records must have a ‘digital’ link with the HMRC tax systems. 
Expenses 
You can claim a tax reduction on some of the costs of running your business. 
You can claim a tax reduction on some of the costs of running your business. 
Profits 
This is the money you keep after you have paid your bills and tax bill. 
This is the money you keep after you have paid your bills and tax bill. 
Tax Returns 
You must declare your income, expenditure and tax owed by 31st January for the tax year which finished on the previous 5th April. 
You must declare your income and expenditure 4 times in the year. You will also complete a formal declaration known as an End of Period Statement (EOPS) on the 31st January for the tax year which finished on the previous 5th April. 
Income Tax Payments on Accounts 
Yes 
Yes 

2 - MTD for Income Tax: What you need to do 

Making Tax Digital for Income Tax will apply to you if you earn over £10,000 per year as a: 
 
Sole trader or unincorporated business owner 
Member of a partnership 
Property landlord 
 
Here is a summary of the requirements you will need to comply with for MTD for 
Income Tax: 
Sign Up

1) Sign Up 

There is no automatic switch over from Self Assessment to MTD for Income Tax. If we complete your personal tax return for you each year we will be in touch to talk about when we will sign you up to MTD for Income Tax. 
 
You will need to sign up by April 
6th 2024 if you are a sole trader or 
property landlord and April 6th 2025 if 
you are a partnership. 
Submit your Quarterly Updates

3) Submit your Quarterly Updates 

Every 3 months you will need to submit a quarterly  
update to HMRC showing your business income and expenses. You will need to do a quarterly update for  
each business you run plus any property income you receive. You only need to do one quarterly update for  
all your property income. 
 
Your quarterly updates do not need to be accurate. However the more accurate you can make them the  
easier it will be to see your tax liabilities going forward. 
Final Declaration

5) Final Declaration  

By the 31st of January you need to make a final single declaration of your tax liability for the previous tax year.  
This means bringing together all the information from  
your business related income, e.g. via your EPOS, and 
non-business-related income, e.g. Pension payments, savings. 
Keep your Financial Records Digitally

2) Keep your Financial Records Digitally 

You will need to keep digital financial records of: 
 
Business income 
Business expenses 
Savings and investments 
Pensions 
Grants 
 
Your digital financial records need to be on a system that can be digitally linked with HMRC’s systems. We recommend using accounting software like Xero, FreeAgent, Quickbooks, Sage or an MTD for Income Tax compatible software designed for property landlords such as Hammock. 
Submit your End of Period Statement (EOPS)

4) Submit your End of Period Statement (EOPS) 

Your EOPS is where you finalise your taxable profit and loss for the year. This needs to be submitted by the 31st Jan for the year ending on the 5th April. This means you have 9 months to get your EOPS submitted. The first EOPS required under MTD will be for the first accounting period of the business beginning on the 6th April 2024. You will need to submit a separate EOPS for each property and trading business. 
Pay your Tax

6) Pay your Tax 

Similar to the Self Assessment Tax System you need to pay your income tax bill (as declared in your final declaration) by the 31st January. Similar to the Self Assessment scheme you may be required to make a payment on account by the 31st July. 

3 - Year 1 and Year 2 Timelines 

This is what happens when if your business or partnership has an accounting period which aligns with the tax year, i.e. 6th April to 5th April. 
This is what happens when if your business or partnership has an accounting period which aligns with the tax year, i.e. 6th April to 5th April.
Notes: 
 
1. Self-assessment tax returns and income tax payments for FY23/24 will be due on the 
31st January 2025. 
 
2. The EOPS and Final Declaration can be submitted earlier than the 31st January 2026 
for the 2024/25 tax year. 

4 - Preparing for MTD for Income Tax 

Set up a Different Bank Account for rach Separate Business and a Different Bank Account for your Property Income

1) Set up a Different Bank Account for rach Separate Business and a Different Bank Account for your Property Income 

Completing 4 quarterly updates, EOPS for each of  
your businesses AND then a final declaration is a lot  
of administration. If you want to make the bookkeeping easier - particularly if we, do it for you - we recommend 
a separate bank account for each of your businesses. 
 
If you don’t already have a separate business bank account, there are many free bank accounts for sole traders such as Mettle, Tide, Monzo, Starling. These  
bank accounts can be set up within minutes (although  
it can take a few days on occasion.) 
Send Invoices and Quotes Digitally

3) Send Invoices and Quotes Digitally  

It’s time to stop using paper to issue invoices. You  
are now required to keep your financial records  
digitally. Therefore, save yourself time to issue the  
invoice digitally. Of course, if your customer requires  
a paper invoice you can always print them out a copy. 
Start Keeping your Financial Records Up-to-date Daily

Start Keeping your Financial Records Up-to-date Daily 

If you use modern accounting 
software it is really easy to keep your financial records  
up-to-date daily. We can show you how easy it is to  
get receipts, expenses, quotes, invoices and even  
your bank statements into your accounting software. 
 
Of course, you can still get us your accountant to tidy  
up your records weekly, monthly, or quarterly. You now have a responsibility to keep your records digitally and declare your income and expenditure quarterly.  
Ensuring you get your receipts, expenses and invoices  
into your financial records when you receive them or  
send them out will help reduce the cost and time of  
your business’s bookkeeping. 
Ditch the bag of Receipts

2) Ditch the bag of Receipts 

You are now required to keep your financial records digitally and report on your business expenditure 
and income quarterly. This means avoiding letting your receipts build up over the year ready for year-end. 
 
We can advise you on different software that you can use, such as Dext, AutoEntry or Hubdoc, that will allow you to take a photo via an app on your phone. The software will then upload the receipt into your accounting software. No more losing paper-based receipts. 
Use an Accounting Package which is Compliant for MTD for Income Tax rather than Spreadsheets for your Financial Records

4) Use an Accounting Package which is Compliant for MTD for Income Tax rather than Spreadsheets for your Financial Records 

It will be easier in the long run for you, (and us if we act as your accountant) if you use accounting software that is compatible with HMRC’s system. There are complicated rules about ‘digital linking’ between your digital records and HRMC. If you use a spreadsheet you could inadvertently break these rules. 
Talk to us NOW if you have a Year End which is not the 5th April

Talk to us NOW if you have a Year End which is not the 5th April 

If your business will need to change its year end date, this has major implications for your tax bill AND your accounting records. Please call us TODAY to discuss the impact and what needs to happen. 

5 - Benefits of using Cloud Accounting vs Paper Records or Spreadsheets 

Using cloud accounting software which is compatible with MTD for Income Tax is the easiest way to ensure you comply with the requirements of MTD for Income Tax. You’ve got time between now and the 6th April 2024 to enjoy the benefits of cloud accounting software. By taking action now you can have an orderly transition rather having to learn new ways of working and software packages in April 2024. April 2024 may seem a long way off, but this will happen really quickly. 
 
Here are the main benefits of using cloud accounting software: 
Work from anywhere with an internet connection

Work from anywhere with an internet connection 

No more having to be in the office to send a quote or invoice. 
Keep your data secure and safe

Keep your data secure and safe 

Your data is kept regularly backed up and very securely in the cloud. Which means less chance of data being lost OR being hacked. 
Save time by automating the boring tasks

Save time by automating the boring tasks 

Cloud accounting software can automate many manual and repetitive tasks, such as matching payments to invoices. 
No more software version clashes

No more software version clashes 

Cloud accounting software updates automatically, so you will always be on the most up-to-date version. 

6 - How We Can Help You 

If you are already a client of ours you will be receiving regular updates about your responsibilities with MTD for Income Tax. We will also be offering training sessions to help you understand your responsibilities and use our recommended cloud accounting software. 
 
We can also help you with: 
 
Bookkeeping 
Moving you onto a cloud accounting software package 
Tax planning - particularly if you are impacted by the basis period change. 
How We Can Help You - Penneys Accountancy - Your trusted and friendly accountants in Farnborough Hampshire.
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