HMRC has re-issued brief guidance on Making Tax Digital (MTD) for landlords and sole traders who will eventually be required to report income tax quarterly.
It is not yet clear when quarterly reporting plus a fifth yearly report will be introduced, but this is the long-term objective for the government.
The fifth report, the so-called final declaration, designed to ultimately replace self assessment tax returns, is still at the trial stage and is unlikely to become mandatory in the short-term.
MTD will eventually be made available to landlords with UK property as well as sole traders with a single business, and only if they do not have additional income of any kind.
The scheme will still not be open to anyone who has income from any other sources, such as dividends, or other payments where tax relief is claimed.
Anyone using the MTD for income tax system will have to use accounting software to submit the returns, raising costs for individuals and business.
The brief HMRC guidance states: ‘You must have software that’s compatible with Making Tax Digital for Income Tax before you sign up.’
Once signed up, the landlord or sole trader or landlord will have to keep digital records of all their business income and expenses. Every three months they will be required to use compatible software to send a summary of business income and expenses to HMRC.
‘The software will tell you when to send the updates to HMRC, or you can choose to send them more often,’ HMRC said.
There will also be the option of setting up special monthly payment plans ‘if you want to pay your tax bill more regularly’.
Once the update is sent in, the MTD for income tax system at HMRC will create a year to date calculation of how much tax is owed at any time based on the information provided in the summary.
There will also be a requirement for a fifth report, detailing the annual tax payable, which will have to be settled by 31 January of the proceeding tax year.
The HMRC guidance states: ‘At the end of your accounting period, you’ll need to finalise your business income and expenses. You’ll also be able to submit any personal income and reliefs you claim.’