Making Tax Digital for sole traders
In this post we discuss Making Tax Digital for sole traders. Essentially Making Tax Digital (MTD) will require sole traders to complete digital tax records, with the ultimate aim of going completely paperless
What is Making Tax Digital?
Making Tax Digital is a UK government initiative that sets out a vision for the 'end of the tax return' and a 'transformed tax system'.
Making Tax Digital has been a fact of life for VAT-registered businesses since 2017. From then onwards HMRC’s requirement has been for VAT returns to be submitted digitally, using accounting software. A phased implementation is designed to ensure that all taxpayers will be required to file tax returns. This includes sole traders with annual sales over £10,000 who will be required to file quarterly digital returns from April 2023.
How will Making Tax Digital work?
We summarise below some of the main points for consideration:
Practicalities for Making Tax Digital for sole traders
Under the new regime, sole traders will now have the following considerations to take into account:
Additional reporting requirements
Unfortunately, as part of Making Tax Digital for sole traders, HMRC will now require five tax returns per year!
Assuming an accounting year corresponds with the tax year, the first report will be due for the quarter ended 5 July 2023. Subsequent reports will be due for the quarters ending in October 2023, January and April 2024. The fifth report (the annual declaration) will follow later.
Making Tax Digital for sole traders – in summary
Making Tax Digital is a revolutionary change to the tax system. It’s a key part of the government’s plans to make it easier for taxpayers and businesses to get their tax right. Plus keep on top of their affairs at the same time. It also imposes increased record-keeping and reporting tasks. It’s less than two years away. Not getting it right may prove costly in terms of tax payable. Although penalties for non-compliance won't be imposed immediately, eventually these will be levied and represent an avoidable burden.
For more useful information, check out our Ebooks here.
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