Making tax digital (MTD) for income tax was seemingly kicked into the long grass when it was announced that it would not become mandatory until 2021 at the earliest. However, with MTD being made mandatory for VAT for most businesses for VAT periods from 1 April 2019, expanding this to other taxes is still very much on the agenda. Indeed, HMRC recently asked for more landlords to work with it on the pilot scheme for income tax for the 2019/20 tax year.
Specifically, the income tax pilot has now been expanded to cover landlords with income from furnished holiday lettings, who had previously been excluded when other UK resident landlords and sole trader businesses were invited to take part.
Individuals will need to meet certain criteria to join the pilot; the most limiting one being that they cannot have any other sources of income or wish to claim tax relief on other payments.
Currently these individuals: declare their taxable income via their self-assessment tax returns, which are due no later than 31 January following the end of the relevant tax year; and, may include paper records in the documents they are required to retain to support their returns.
Under the pilot scheme, taxpayers will keep their income and expenses records digitally (on compatible software which they will need to source) and send details to HMRC every three months.
A final report will need to submitted by 31 January following the end of the relevant tax year; which remains the tax year in which the business’ accounting year end falls.
For example, if the accounting period end is 5 April 2020, the four updates will be required by 5 August 2019, 5 November 2019, 5 February 2020 and 5 May 2020, with the final report required by 31 January 2021. The deadlines for tax payments remain unchanged.
The following advantages may arise from taking part in the pilot.
- Taxpayers can familiarise themselves with the system sooner rather than later on the basis MTD is going to come in and so they can get ahead of the game.
- HMRC offered greater assistance to those that volunteered for the MTD VAT pilot and so the expectation would be that more help would also be offered for those volunteering for this one.
- Taxpayers will be able to view an estimate of their tax at any time based on the information submitted – currently this is not available until their tax return is submitted.
- If a business becomes taxable from April 2019, it could be advisable to get involved with the new system from the start.
It’s highly likely that this pilot programme will eventually lead to an obligation on all landlords and other businesses to report digitally (and perhaps pay their tax) on a quarterly basis. Landlords and other business owners should be under no illusion – MTD is now a question of when rather than if.