Chartered Certified Accountants

MTD for Income Tax will now be mandated for businesses and landlords with a business income over £10,000 per annum in the tax year beginning in April 2024.

General partnerships will not be required to join MTD for ITSA until the tax year beginning in April 2025, while the date other types of partnerships will be required to join will be confirmed in the future.

In March 2021, the government announced a new system of penalties for the late filing and late payment of tax for ITSA. The new system for those who are mandated for MTD for ITSA will now come into effect in the tax year beginning in April 2024, and in the tax year beginning in April 2025 for all other ITSA taxpayers.

Eligible businesses and landlords will have the opportunity to gain the benefits of MTD early by signing up to the pilot, which is already underway and will be gradually expanded during the 2022 to 2023 tax year, ready for larger scale testing in the 2023 to 2024 tax year.

What is MTD for Income Tax Self-Assessment?

Under the requirements of MTD for ITSA, individuals who are subject to income tax on the profits of their trade, profession, vocation or property business will be required to keep their accounting records electronically (either using suitable software or on spreadsheet) and file quarterly returns to HMRC with details of their income and expenditure together with any other information that HMRC specifies.

A final end of period statement will then be submitted after the tax year to complete the individual’s tax affairs.

Although the frequency of reporting is to change, the timing of tax payments will not and the current system of payments on account and balancing payment by January 31 after the tax year is currently expected to remain in place.

Under the current system, tax returns filed by the self-employed, sole traders and partnerships are based on a business’s set of accounts ending in the tax year (April 5). More complex rules apply when a business starts and draws up its accounts to a date different to the end of the tax year.

In those cases, taxpayers pay tax for their first tax year on the period to the end of the tax year, and then in subsequent years on the basis of their full accounting year, meaning profits are taxed twice and complex rules apply to relieve the double taxation when the business finishes.

Financial Secretary to the Treasury Jesse Norman said:

“These complex rules lead to thousands of errors and mistakes in self-employed tax returns every year.

“Simplifying them will allow self-employed people to spend less time doing tax admin and more time growing their business and creating jobs.”

The change to the time periods against which businesses report their tax will also reduce the number of times those with several sources of income will need to report their income under MTD for Income Tax.

Tom Selby, senior analyst at AJ Bell, said: “Pensions Dashboards have the potential to make life a whole lot easier for millions of people who build multiple retirement pots over the course of their working lives.

“Being able to see all of your retirement pots in one place online could be a game changer. Most obviously it should save people the hassle of digging through old statements – if they have them at all – when they want to consolidate their old schemes.

“It should also make the scourge of lost pension pots a thing of the past, and over the longer-term could become a tool to boost retirement engagement and understanding. However, before that great pensions oak tree can emerge the government and the pensions industry needs to get an acorn in the ground.

“There is little doubt the government was wildly optimistic when it suggested Dashboards could be up-and-running in 2019. This is a huge project involving vast amounts of data and with people’s life savings at stake, so the most important thing is ensuring that data is safe and the information people eventually see on dashboards is reliable.

Sole traders and Partnerships

Another group that need to be aware of the dividend rules are the self-employed, whether sole traders or partners in a business. Why you may ask, given they won’t be receiving dividends?

Well the simple answer is that for self-employed businesses, especially ones growing, there can come a point where it is much more tax efficient to operate the business through a limited company instead, and there can be a number of other reasons for operating through a limited company should profits suffice.  

The ways dividend are taxed could have an impact on when this decision is made, or the potential tax savings to be enjoyed. And so given the complexities surrounding such a decision we are offering a Dividend Impact Review service to help those interested in reviewing their situation. Further details and how you could secure your FREE review are given below.    

Savings

If you hold shares in exempt savings such as ISA’s or pensions then these are not affected by the recent dividend tax changes or the planned reduction in dividend allowance.

However share investments could be affected. Depending upon your circumstances it may be worth considering options such as re-organising your investments, or considering more capital growth investments rather than income generating.

Again we would be happy to review your position with you and explain the options thoroughly as part of our Dividend Impact Review service.

The new dividend tax rules could create a problem for some individuals, who previously have not needed to complete a self-assessment tax return. If tax is due on their dividend income then they will need to notify HMRC and may need to complete and submit a self-assessment tax return, which could catch many individuals out who have never needed to complete a tax return.

Our new Dividend Impact Review Service

We are today launching our Dividend Impact Review service. We will be able to identify whether the changes will impact on you whatever your circumstances, quantify the potential impact, and what action can be taken.

The service is normally worth £675 + VAT but we are offering it free to the first 40 customers.