MTD will require many landlords and self-employed individuals to keep digital records of income and expenditure relating to their businesses and rental properties. These records will form the basis of quarterly updates which will need to be submitted digitally to HMRC. The opportunity to get MTD ready is fast dwindling and here’s why it is so important to address this now:
- There will be penalties for late submissions by taxpayers within MTD IT.
- Submissions cannot be made directly through HMRC. Specialist software will be needed to make the reports, so you need to discuss this reporting with us or obtain the software needed.
- You need to be registered with HMRC to make the submissions.
- HMRC will not automatically register taxpayers within scope of MTD automatically. Taxpayers whose income meets the relevant threshold will need to sign up to use MTD in a similar way to how taxpayers register for self-assessment now. This process will take some time.
- Quarterly submissions will be onerous and potentially costly unless you take steps to make this as simple as possible.
Currently your advisor puts together your accounts, stripping out personal expenses, identifying additional costs met from other accounts and collating the information into the familiar income, less expenses statements you are used to reviewing in a tax return. With just one month to report this information to HMRC this process needs to become more streamlined.
Under MTD, individuals will have to keep digital records of the amount, category and the date of the income and expenses relating to their sole trade and/or property businesses.
Here are the steps you should take now to be ready for MTD IT:
- Set up a single account for your rental business or your self-employment and get into the habit of putting everything through just this account. Do not use this account for any personal expenditure. This MUST be a clean business account.
- Overseas self-employment and overseas rental businesses will need to be reported separately. You may wish to start talking to us about the software options to retain details of your rental income and expenses.
Using a letting agent?
- If you are using a letting agent, then speak to them now and ensure they understand that you will need your rental information immediately after the quarter end.
- We can use the statements from the letting agents to make the report to HMRC provided they are received in a timely manner.
Currently HMRC will not allow letting agents to submit information to them using the MTD IT portal so they must provide the information to you/or us for submission to HMRC.
Whilst we wouldn’t expect the letting agent to understand tax reliefs they provide a vital role in gathering information, so it is important that they understand that there is just 1 month and 7 days to prepare, review and submit this information to HMRC.
Using spreadsheets or keeping receipts?
- You should discuss software options with us now to start storing your information electronically.
- Your information must be kept up to date and it should be easy to identify the income and allowable expenses
- Remember that our aim is to make this as simple as possible. If the information becomes hard to identify or obtain then it will take longer to address, and this is likely to result in unnecessary costs and possibly errors.
A digital Tax Return
After the fourth and final quarterly update has been filed, you will need to submit a ‘digital tax return’ to finalise your income tax position for the year. MTD will not change the due dates for paying income tax or filing the tax return.
There will be no online filing service provided by HMRC. You will need compatible software to file the digital tax return.
In summary
Reporting to HMRC is changing and you must take steps to become ready for this now.
If you have any queries and would like assistance, please contact Diane Nettleton on 01633 653167 or email diane.nettleton@kilsbywilliams.com. Alternatively, please contact your usual advisor on 01633 810081 or email info@kilsbywilliams.com
