It is anticipated that from 6 April 2023, all unincorporated businesses will need to report their income and expenses on a tax year basis, regardless of their actual accounting year end.

Whilst we are still waiting for final confirmation of these new regulations for Making Tax Digital for Income Tax (these should be published in the Autumn), the existing rules for VAT and the guidance produced to date by professional bodies and HMRC give us a good idea of what to expect.

Income Tax implications

As well as reporting on a tax year basis, businesses will be required to file quarterly submissions, with a penalty system for late filing.

The reporting deadlines are expected to be 5 August, 5 November, 5 February, and 5 May.

Quarterly submissions will require businesses to report on their total income and expenses for the period, within a set of defined categories. Balance Sheet statements will likely not be required.

Any accounting adjustments will be made on the final submission for the year – this will include capital allowances.

The final submission will be by 31 January following the tax year end, in line with the existing system.

What will you have to do to comply?

If your annual taxable turnover is above £10,000, you will have to register for the new reporting scheme detailed above and make the submissions by the deadlines advised.

You will need to keep digital records, as you will be required to make your quarterly submissions via MTD compatible software.

There are exemptions due to age, disability, and remoteness of location, but most businesses will be expected to comply.

Tax will still be due by 31 January, though it would not be a surprise to see quarterly payments introduced at some point down the line.

Can your business benefit?

Yes! Having more accurate and timely financial information should be seen as a positive for your business. 

If your bookkeeping is of a good standard, there should not be a material increase in costs to comply with the new rules. 

Stand by for new developments and potential changes to this new regime as HMRC look towards publishing final legislation rules later in the year.