Making Tax Digital (MTD) is not about submitting tax returns. It is about updating your personal digital tax account with the information HMRC require, at certain stages.
A lot of the information that HMRC require will be ‘pre-populated’ i.e. already supplied and reported within the digital account by a third party, or HMRC themselves.
Instead of a client submitting a tax return which HMRC may or may not check, HMRC will use information and figures supplied to them by third parties. To pre populate the client’s digital tax account, which the client (or their agent) will now check!
There are six stages to MTD, each year, for your average sole trader.
It is intended that full details of the client’s trading income and expenditure will have to be submitted electronically by the taxpayer every quarter.
Landlords will also have to do quarterly digital tax accounts.
The first four stages
Quarter 1 - Trading - Income - Less - Expenses
Quarter 2 - Trading - Income - Less - Expenses
Quarter 3 - Trading - Income - Less - Expenses
Quarter 4 - Trading - Income - Less - Expenses
i.e. (1) no tax adjustments each quarter – voluntary.
(2) investment income and capital gains are not included
The fifth stage
The year end activity report (previously called HMRC the end of year activity return)
The end of year activity report will produce the ‘adjusted taxable trading profit’ for the client.
- Final set of accounts
- Accruals and provisions
- Tax add backs
- Capital allowances claim
- Loss relief
- Adjusted taxable profit figure
The end of year activity report will have to be updated and appear on the client’s digital tax account within 10 months of the end of the accounting period or, if earlier, 31st January following the relevant fiscal year in which the accounting period ends.
The sixth stage
The completion of the ‘end of year fiscal notification report’
Investment income and capital gains
A trader’s investment income and capital gains, not already reported to HMRC on the digital tax account will have to be separately reported by updating the digital tax account on a fiscal year basis.
Inserting the missing investment income and capital gains for the appropriate 6th April to the following 5th April.
We are awaiting HMRC’s confirmation of the submission deadline date for the completion of the ‘end of year fiscal notification report’, which will be after the end of the appropriate fiscal year.
Will the submission date be the same now, i.e. a deadline for completing the ‘end of year fiscal notification report’ by 31st January following the end of the fiscal year in question.
And that’s a thumbnail sketch of the six stages.
Tell us what you think!