MTD for Income tax

Here are two short videos explaining the changes coming with Making Tax Digital for income tax.

There is more information about the 3 services Accounting Genie will offer at the bottom of the page.

Use the Contact form to get in touch.

Summary

If you are a sole trader, or rent out property, the income tax system is completely changing. Instead of having one annual tax return, there are going to be 4 mini tax returns and 1 final tax return every year.

The four mini tax returns, and the final return will have to be submitted using software linked to your business bank account. You will be penalised if you do not comply.

The change is being rolled out slowly. Your deadline depends on how big your business is.

This change currently does not affect Partnerships or Limited Companies, but is likely to come soon after Sole Traders, and Landlords.

How big is your business? What is Qualifying Income?

Try not to get too confused about this, it is only to determine when the changes will begin for you. The bigger your business the sooner the changes. HMRC will look at your Qualifying Income to determine the size of your business.

Qualifying Income is turnover, (the total sales number for the previous year). Below is an example of what turnover means, it is the total sales figure before you deduct any expenses:

HMRC will also be looking at other income you receive that is not taxed at source and adding it to the turnover. So, this might be Sole Trader turnover + Property rental income (before any expenses). eg Sole trader turnover is £40,000 and you rent out a property and receive £10,000 in rent. Your qualifying income will be £50,000.

If you are a Landlord and own the property with somebody else, you only include your portion of the rental income, eg property owned with spouse: the £10,000 would be split equally, meaning the Qualifying Income would be £45,000. £40,000 sole trader turnover + £5,000 Property rental.

Deadlines

Here are the deadlines for complying with the new tax rules, remember it is based on your Qualifying Income, if you don’t comply, you will be penalised.

What is Accounting Genie going to do about this?

The final tax return will be similar to what I already do for you; except I will need to use special software.

The main change will be the mini tax returns that need to be sent to HMRC every quarter using software. These will be called Quarterly Updates.

The software connects to your business bank account. Then you classify each transaction into a category: sales, expenses or drawings (remember drawings is what you take out of the business to pay yourself). Once you have finished that you will send the information to HMRC.

The software will cost money, but will do most of the work for you.

Some clients will feel confident enough to do this on their own. Some clients might need a bit of help to start with, but then are happy to go on their own. Some clients will feel they need me to do this for them.

So, I have designed 3 new accounting packages for Sole traders and Landlords, you will need to decide what level of service you want. The £ signs indicate the expected cost to you.

Making Tax Digital Packages - 3 packages to choose from

£ DIY

You will pay for the software learn how to use it, link the business bank account, and do the quarterly updates to HMRC.

Accounting Genie will perform the annual tax return, very similar to what we do now. The price for this service will be similar to what I charge now, but if there are a lot of mistakes in the quarterly updates you have submitted, extra time will be charged to make things right.

££ Training plus Check & send service

Accounting Genie will help you decide which software is best for you, train you on how to use the software. You will then use the software to identify the transactions, putting them into the correct category getting everything ready for submitting to HMRC. Accounting Genie will then do a check, and send the information to HMRC. I predict you will only need 4 ‘Check & Send’ goes, by which time you will be confident to go onto the DIY package. The cost of this package will be tailored to you, as it depends on how good you already are at computers and using your mobile phone.

Accounting Genie will still perform the annual tax return, very similar to what we do now. The price for this service will be similar to what I charge now.

£££ Fully serviced package

Some clients cannot face the concept of using the software or doing Quarterly Updates. I get it, it is scary and difficult.

So, Accounting Genie is offering the Fully serviced package. With this service, Accounting Genie will use the software for you. You will need to either link your business bank account to the software, using something called a ‘Bank feed’, or you will provide the bank statements in a CSV format. PDFs or paper statements will not be accepted.

The Quarterly Updates will be sent to HMRC on your behalf. Then Accounting Genie will perform the annual tax return, very similar to what we do now.

This is the most expensive package from Accounting Genie, this is because every quarter Accounting Genie will need to dedicate time to categorising each bank transaction before sending the Quarterly Update.

The Software and the Bank accounts

You will need a dedicated bank account, where no personal transactions happen. Some software will only allow you to link Business Bank accounts. Shop around for the type of bank account that suits you, there are lots of free business bank accounts these days. But, if you bank cash regularly you may have to shop a little harder.

Accounting Genie currently uses Xero, Quickbooks and Free Agent. These brands have apps you can install on your mobile phone. But, to get the best use out of the software I recommend using a computer as there are more options and is clearer to understand the software.

Please Google the prices, as these often change. Usually a monthly subscription is required.

This is what Accounting Genie thinks of each, I don’t get paid to say this:

Xero – this is the most user friendly and most reliable software. There is a mobile app.

FreeAgent – currently this is free if you have a Natwest business bank account (Natwest, Mettle, Bank of Scotland Ulster Bank). If you don’t have a Natwest business bank account, then the subscription can cost more than Xero/Quickbooks.

Quickbooks – this is similar to Xero, but I find it is a bit clunky and not as nice to use as Xero. There is a mobile app.

I am qualified in each of these software packages, but also use other software not listed.

Conclusion

Tax is changing, from April 2026 you will need to keep digital records and submit quarterly mini tax returns to HMRC. This will be on top of the usual annual tax return.

The changes are being rolled out over three years, with larger businesses being affected first.

Accounting Genie is going to offer three levels of service to help clients through this change: 1) DIY, 2) DIY with check & send, and 3) Fully serviced. You will need to consider what service level you request.

In the coming months Accounting Genie will be in touch with existing clients to ask what level of service they want, and make arrangements for the change.

Accounting Genie will also be recording training videos, so keep checking back for updates.

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