Making Tax Digital Update

For income tax and overlap profits

A long awaited and much discussed topic. This has now been postponed until April 2024. This may sound a long way away but if there are a number of things to do.

Who is affected?

Sole traders and landlords with income over £10,000 are the first category.

Businesses in these categories with a year end which is NOT 31 March or 5th April.

Impact

All of these businesses will need to change their year end to bring it into line with the tax year. The earlier this is done the easier it will be. However, it will mean that more than 12 months of profits will be brought into tax in one year. HMRC have recognised that this is unjust and have created a system to mitigate the impact.

Future

In future, businesses will report their profits quarterly and then true up the figures at the year end to pay the tax in January as before. This may eventually change to quarterly payments but that is not being proposed now. For those on digital software programmes for their accounts this is not a difficult transition.

Advantages

Reporting to HMRC quarterly will encourage businesses to look at their results far more frequently and understand their profits and costs rather than relying on the bank balance as a method of measuring success.

Actions

Firstly, there will be “overlap” profits which were taxed in the opening 3 years of trade. These profits are offset against the taxable income in the year that the change is made.

HMRC have the details of these “overlap” profits and it is possible to write to them and ask for the figure. In the current climate, the response can take months. It is this step that is critical now!

Summary

Planning for this change now is key to ensuring the right amount of tax is paid when the system goes live.




Quarterly reporting date options

Tax Year Quarters
Period Covered Filing Deadline
Quarter Update 1 6th April to 5th July 5th August
Quarter Update 2 6th July to 5th October 5th November
Quarter Update 3 6th October to 5th January 5th February
Quarter Update 4 6th Januart to 5th April 5th May
Calendar Quarters
Period Covered Filing Deadline
Quarter Update 1 1st April to 30th June 5th August
Quarter Update 2 1st July to 30th September 5th November
Quarter Update 3 1st October to 31st December 5th February
Quarter Update 4 1st January to 31st March 5th May
Making Tax Digital Update