Making Tax DigitalAug. 9, 2023, 4:23pm
What is Making Tax Digital?
Making Tax Digital (MTD) changes the way businesses report financial information to the UK tax authority, HM Revenue & Customs (HMRC). MTD is the government’s key strategy to transform tax administration so that it is more effective, more efficient and easier for taxpayers.
HMRC started to digitalise the UK tax system in April 2019, however, the view is to implement MTD for certain income tax businesses from 2026.
What is changing for UK businesses?
To begin with, one major change is to keep and submit certain information to HMRC via Government-approved software.
Other changes are aimed at self-employed businesses, including partners in partnerships. These may require businesses to change their year-end.
We will briefly discuss the potential year-end changes for you as part of this Tindles Takeaway series:
5 April year-ends
Firstly, year-ends between 31 March and 5 April are generally treated in the same way throughout the new tax rules.
The gist of the new rules is that, for 2024/25 onwards, self-employed businesses, including partners in partnerships, will be taxed on the profits arising in each tax year, rather than by reference to profits arising in a set of accounts ending in that tax year, which has previously been the case.
For instance, if you already draw up accounts to 31 March/5 April, then nothing much will change. The profits for 31 March 2024 will be taxable for 2023/24, 31 March 2025 taxable for 2024/25, etc.
If your business draws up accounts to non-31 March/5 April, then special rules will apply for 2023/24 to require businesses to tax profits on a 31 March/5 April basis.
If the accounting year does not end on 31 March/5 April, profits would have to be divided out across two sets of accounts on an ongoing basis, which is not practical.
Two things to note for such businesses are:
- any ‘overlap profit’ brought forward from earlier years will be deducted from the profits for 2023/24
- any additional profit brought into account for 2023/24 will be automatically spread over five years, starting with 2023/24.
How Tindles are supporting businesses through MTD?
Here, we have provided a top-level overview of the changes. These may be more complex in specific situations and Tindles is committed to preparing all our clients for the transition.
Tindles is closely following the development of the MTD agenda and its technical implementation. We will continue to proactively keep our clients informed and use our accountancy and tax expertise to find the best route forward.