MTD for Landlords and Sole Traders From April 2024

The UK government’s call for digitalising the taxation system came up in a programme named Making Tax Digital (MTD). This initiative by the UK government aims to make fundamental changes in how the tax system works.

The HMRC has one purpose that it wants to fulfill with this initiative: to transform the tax system to become more effective, streamlined, and easier for businesses and individuals to follow.

MTD for landlords and sole traders will become mandatory from April 6, 2024. So what are your doubts regarding it? We have summarised some frequently asked questions in this blog, which will help you file your taxes more simply. Read ahead to find your answers!

Frequently Asked Questions About MTD For Landlords and Sole Traders

Frequently Asked Questions About MTD For Landlords and Sole Traders

What are the requirements related to MTD for landlords and sole traders?

You will be required to operate MTD from April 6, 2024, about your trading and property income chargeable to Income Tax and Class 4 NICs if your gross income from these income sources for a tax year exceeds £10,000.

In addition to it, you will also have to manage your records digitally (for ITSA purposes only), provide digital quarterly updates, and ITSA returns information to HMRC through MTD-compatible software.

Here are the specific instructions mentioned under ITSA regulations for landlords and sole traders:

  • You must have a relevant person to keep and preserve your tax records electronically and submit reports to HMRC using approved software.
  • Each tax year or basis period requires submitting a report detailing the business’s trading or property income, permissible expenses, and claims for allowances or reliefs against such income. You can find more information on it by visiting GOV.UK.

When will landlords and sole traders need to join MTD in absolute terms?

In absolute terms, MTD for ITSA, also called MTD for Landlords, and Sole Traders for income tax will be effective from April 6, 2024, for all unincorporated businesses, i.e., sole traders, partnerships, landlords, etc.), irrespective of when your current accounting period stops.

The base year for testing the MTD turnover threshold will be 2022 and 2023. The turnover figures for 2022/23 will not be affected by Covid-related grants. In that case, it should reflect normal trading irrespective of the pandemic disruptions for most businesses.

What are the filing deadlines for Making Tax Digital for landlords under ITSA?

What are the filing deadlines for Making Tax Digital for landlords under ITSA

The quarterly reporting deadlines for all unincorporated firms submitting under MTD for Landlords and Sole Traders will be: August 5, November 5, February 5, and May 5, according to confirmation from HMRC.

Businesses with accounting dates of March 31 or April 1, 2, 3, or 4 will also file by these deadlines, giving a company with a March 31 accounting date an additional five days to do so. HMRC must receive the first ITSA-mandated MTD submission for landlords and sole proprietors by August 5, 2024, which falls on a Saturday.

What is Discovery Assessment?

A “discovery assessment” may be issued by HMRC if they identify a “loss of tax” for a tax year. If we assume that a taxpayer has filed his return for that particular year, then a discovery assessment may be given by HMRC in cases when:

  • The taxpayer or someone operating on their behalf did a reckless or intentional action that was the cause of the underassessment.
  • Based on the tax return and other facts available to him at that particular time, a hypothetical HMRC officer enquires about the return. But after his inquiries into the return concluded, the officer needed to know reasonably about the under-assessment.
  • The return did not follow the standard procedure in effect when it was made.

A discovery assessment can typically be done up to four years after the conclusion of the relevant tax year. The deadline is six years after the end of the tax year if carelessness caused the loss of tax; if the behaviour was intentional, involving a failure to notify, or a breach of a duty under the DOTAS or POTAS rules, the deadline is twenty years after the end of the tax year.

When assessing tax on an offshore matter or transfer, extended 12-year time restrictions are applicable if the loss of tax was due to either an error made despite reasonable care being taken or a failure to take reasonable care.

To Sum It Up

MTD ITSA will follow the successful implementation of MTD for VAT-registered businesses with taxable turnover below the VAT threshold, which began in April 2022. MTD ITSA also builds on the successful execution of MTD for those VAT-registered businesses with taxable turnover above the VAT threshold that started in April 2019.