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MTD – THE ESSENTIALS

Fri, 13 Mar 2026 11:44:58 GMT

As you may have seen through the national media “Making Tax Digital”, or MTD as it is commonly known, is almost upon us. MTD represents a major change to the UK tax system.

When Is Making Tax Digital Being Introduced?

MTD is being introduced in three stages over the next three years for sole traders and landlords as follows:

Tax year ending — 5 April 2027

Threshold for qualifying income for MTD — £50,00

Qualifying income from tax return for year ending — 5 April 2025

Tax year ending – 5 April 2028

Threshold for qualifying income for MTD — £30,00

Qualifying income from tax return for year ending — 5 April 2026

Tax year ending – 5 April 2029

Threshold for qualifying income for MTD — £20,00

Qualifying income from tax return for year ending — 5 April 2027

Please note that at present the MTD commencement date for partnerships has not been announced. In addition, HMRC have confirmed that MTD will not now apply to limited companies.

As noted above the first group of sole traders and landlords to whom MTD will apply will be those whose gross income (before deduction of expenses) was over £50,000 in the tax year ending 5 April 2025 i.e. for the last tax return submitted.

For individuals who are both sole traders and landlords, gross income is calculated as trading income plus gross rents, all before expenses and deductions.

Therefore, if your gross income as declared in your tax return for the year ended 5 April 2025 was more than £50,000 you will need to register for MTD.

What Does Making Tax Digital Involve?

If your income is above the relevant threshold (see above) you will need to register for Making Tax Digital from 1 April 2026 (if you are a sole trader and your accounting year end is 31 March) or 6 April 2026 (if your accounting year end is 5 April).

We will be arranging this on behalf of our existing clients.

You will also be required to comply with the MTD for Income Tax Self-Assessment regulations and need to:

Keep digital records of their business income and expenses
Use compatible software to maintain and process those records
Submit quarterly returns or “updates” of your income and expenses to HMRC instead of only one annual tax return
Submit a fifth annual return incorporating income declared from your quarterly returns plus other income sources.
This means that instead of submitting one tax return for each tax year you will now need to submit 5 tax returns.

This will change how your tax information is recorded and reported and may require setting up suitable accounting software after completing official MTD registration.

When Will Quarterly Returns need to be submitted?

If calendar quarters are used to simplify reporting (which HMRC does allow), you will need to be registered by 1 April 2026 to ensure everything is set up and ready for the first quarterly update.

The applicable quarterly dates and due dates for submission of the quarterly returns are as follows:

Period 1: 1 April — 30 June (submission deadline – 7 August)

Period 2: 1 July — 30 September (submission deadline – 7 November)

Period 3: 1 October — 31 December (submission deadline – 7 February)

Period 4: 1 January — 31 March (submission deadline – 7 May)

For sole traders and landlords using 5 April year ends the quarterly dates are:

Period 1: 6 April — 5 July (submission deadline – 7 August)

Period 2: 6 July — 5 October (submission deadline – 7 November)

Period 3: 6 October — 5 January (submission deadline – 7 February)

Period 4: 6 January — 5 April (submission deadline – 7 May)

The deadline for the submission of the final annual MTD return will remain 31 January immediately following the relevant tax year end. For example, the submission deadline for the return for the year ended 5 April 2027 will be 31 January 2028.

When Will Tax Due Dates Fall?

At the moment payment dates for MTD will be the same as for self-assessment tax returns i.e.

First payment on account — 31 January during the relevant tax year
Second payment on account — 31 July following the end of the tax year
Balancing payment — 31 January following the end of the tax year

For example, the due dates for the tax year ended 5 April 2027 will be:

First payment on account — 31 January 2027
Second payment on account — 31 July 2027
Balancing payment — 31 January 2028

Will There Be a Penalty System Under MTD?

At the moment it has been announced that MTD penalties for late submission of quarterly returns will not be applied for the initial year of MTD to 5 April 2027.

However, that should be balanced against the fact no mitigation has been announced for the penalty for failure to maintain digital records of up to £3,000.

We will be providing further details of the penalty regime under MTD separately.

How Can We Help You With MTD?

We will guide you through each stage to ensure a smooth transition to MTD.

In particular, we can assist you with MTD registration, reminder services for your records, preparation of digital records and submission of the required quarterly returns and annual returns as required.

You will not need to pay a monthly subscription for approved software because we provide this free of charge.

If you use software of your own choosing to prepare your records we can accommodate that with any provider, but please be aware that we would need to review the records prior to submission to identify any errors or omissions and any other adjustments.

You should also note that many companies are offering substantial introductory discounts for software over the transition period to MTD. These are generally restricted for a few months before the full price subscription becomes payable at significantly higher prices. Please aware of this.

We provide free HMRC approved software for clients using our quarterly MTD return service and can manage your digital records and the processing of your returns on your behalf.

Ultimately, your digital records will require analytical and other additional work before final accounts and tax calculations can be prepared.

Please contact Robert on his mobile number or our office number 0161 485 3027 if you have any questions or would like further clarification of any points arising.

We will be arranging registration for MTD for all of our existing clients.

Important changes to the tax system affecting the self employed employed including partnerships

Thu, 16 Feb 2023 09:38:39 GMT

Most traders will be aware of proposed changes to the way in which they need to report their trading results to HMRC as a result of “Making Tax Digital” or MTD as it is often known.

What many owners of unincorporated businesses, including partnerships, may not be aware of is that some of the changes associated with MTD may actually impact them in the forthcoming tax year ended 5th April 2024 (commencing in April 2023).

The changes concern the accounting date to which a business prepares its annual accounts and it’s important that unincorporated traders are aware of them. As HMRC have already announced:

“This measure is expected to have a significant impact on all self-employed traders and partners with trading income who do not currently draw up their accounts to 5 April or 31 March. There are an estimated 528,000 sole traders and partners with non-tax year basis periods.”

Despite this affecting hundreds of thousands of people HMRC appears not to be conducting a publicity campaign to make them aware of how this affects them or of the impact of the changes.

These changes affect the tax basis under which profits are assessed which will be moving from the current year basis to the tax year basis which will generate additional tax and national insurance liabilities over and above what they might otherwise expect.

Affected businesses should be seeking the advice their accountants to understand how this affects them and the amount of tax they pay. The mechanisms for effecting the change of basis are technical and relatively complex yet failure to follow them could result in businesses suffering interest and penalties for late payment and incorrect submissions.

Under the current system businesses are, usually, assessed on the profits of their business arising in the accounting period ending in that year of assessment, known as the current year basis.

From the tax year 2024/25 or April 2024 businesses must report their profits on what will be known as the tax year basis which effectively means for the tax year i.e. from 6th April to the following 5th April.

For this purpose HMRC will treat any business which prepares accounts in the period between 31st March to the 5th April, as having an accounting date or year-end of 5th April for tax purposes. So, an accounting year end of 31st March is treated as coterminous with the tax year ended 5th April.

It will still be possible to have an accounting period not aligned with the tax year but in that case the business will need to apportion the profits from different accounting periods to calculate the taxable profits of the tax year. This will be a time-consuming and possibly complicated and expensive process which may involve the use of estimates where actual figures are not available increasing the risk of interest charges and late payment penalties.

For this reason most businesses not already using an accounting period between 31st March and 5th April will probably want to synchronise their accounting periods with the tax year basis.

To implement the change of basis the tax year ending 5th April 2024 will be treated as a transitional year in which businesses can synchronise their accounting period to the tax year basis.

This will generally be achieved by extending the trade’s existing accounting year end for the year ended 5th April 2022 to a date between 31st March and 5th April 2024 which will involve creating a basis period longer than 12 months.

This period will be apportioned between one period of 12 months (the standard period) and a further period covering the period to the end of the tax year known as the “transitional” period, the profits of which will be reduced by any available overlap relief.

It’s important to note that the transitional period’s profits will not be included in the adjusted net income figure for the purposes of calculating the High Income Child Benefit Charge although there is uncertainty whether it should be included for the purposes of reducing personal allowances for high earners.

If the profits of the “transitional” period less overlap relief are positive then there will be income spreading provisions that will spread the adjusted “transitional” profit over five years beginning with that for the year ended 5th April 2024. Income spreading is intended to ameliorate the impact of including the “extended period” profits together with the “standard” profits in calculating tax liabilities for the transitional year.

If the profits of the “transitional” less overlap relief are negative then that loss will set off against the profits of the “standard” period or if no profits are available treated as a terminal loss making carry-back relief available.

For any year in which an addition under the income spreading provisions applies it will be possible to make an election to bring any specified amount of additional income subject to the spreading provisions for future years into the taxable profit of that current year. This would be known as an “election to accelerate charge”.

As will be appreciated the change of basis period to the tax year basis is a complex and technical subject. This article was produced for illustrative purposes only and includes simplification of some detailed issues for reasons space and brevity and in particular some of the more complicated computational issues.

This article is not intended to be a detailed guide covering all of the issues involved in the transition to the tax year basis and as such no liability can be accepted in relation to it for any purpose other than for illustrative purposes.

It is therefore important that professional advice be sought before taking action in respect of these new provisions.

If you need help or advice on any of these issues please do not hesitate to telephone us on 0161 485 3027 and we will be pleased speak to you.

VAT De-Registration

Tue, 08 Oct 2019 12:34:17 GMT

Provided that a business meets the relevant conditions for VAT de-registration it may make an application to HMRC to de-register for VAT. This may be as a result of ceasing to make taxable supplies (a compulsory deregistration) or could be as a result of it’s taxable supplies falling below the VAT de-registration threshold (a voluntary de-registration).

Where a business’s taxable supplies fall below the de-registration limit but the business continues to make taxable supplies there is no requirement for it de-register.

There are a number of circumstances in which a business may need to consider a compulsory VAT de-registration these include:

· Where there is a change in the legal entity carrying on the business.

· Where someone takes over your business.

· When a business creates or joins or leaves a VAT group.

· A business joins an agricultural flat rate scheme.

Where there is a compulsory VAT deregistration the business must deregister within 30 days and failure to do so can result in a penalty.

You can apply for a voluntary deregistration if any of the following occur:

· You can satisfy to HMRC that your taxable turnover for the next 12 months will not be greater than the deregistration limit.

· If part of your business closes down the turnover generated by the remaining elements of your business will not exceed the VAT registration limit.

· If your turnover exceeds the VAT registration limit but your taxable supplies are mainly or wholly or mainly zero rated. If you make any standard rated supplies you can only deregister if input tax normally exceeds your output tax.

If you are making an application for a voluntary deregistration you will need to inform HMRC of the date on which you intend to deregister which can be

· the date that HMRC receive your registration or

· a later date you agree with HMRC

An application to de-register cannot be backdated and it is important that you should continue accounting for VAT until you receive confirmation of your deregistration date.

You can make an application to deregister either online of using a form VAT 7 application to cancel your VAT registration.

Please note that you may have to account for VAT on stock and assets that are held at the date of registration known as a deemed supply.

· This would include an interest in land where you make an option to tax.

· Tangible goods such as stock, plant & machinery, commercial vehicles, computers against which you have claimed VAT input tax when you bought them.

· Goods which you acquired VAT free as part of a transfer of a business as a going concern.

Please that you do not need to account for VAT if the total VAT due on the goods would be £1,000 or less or have a net value of £5,000 (gross value £6,000). Goods should be valued at their current market value or at the price it would cost to produce them when the VAT registration is cancelled.

You do not have to account for VAT on any of the following:

· Goods that were bought from and a business not registered for VAT or a private individual.

· Cars (except private taxis, self drive hire cars or driving school cars against which input tax was claimed on purchase).

· Goods acquired under a VAT margin scheme.

· Goods used wholly for entertainment.

· Goods attributed or used for a VAT exempt activity unless the partial exemption applied.

· Land or buildings which were acquired VAT free on which there has been no option to tax.

· Goods not acquired for business purposes.

You must advise HMRC of any change affecting your registration for VAT, including deregistration, within 30 day of the change or risk incurring a penalty.

Special rules and exceptions apply to businesses which use VAT schemes, agents, changes of ownership, VAT groups, non-established taxable persons, distance sales and others which are outside the scope of this article.

Please note that you should always seek professional advice on any aspect your affairs. Tax legislation and rules change over time so it’s important to ensure that the advice you receive is up to date. In addition tax legislation is often complex and requires detailed understanding which it is not possible to describe in a short article which is only intended to provide general information.

For these reasons we cannot accept any liability for the use or misuse of such information without having sought prior advice. Any use that is made of the above details is therefore undertaken entirely at the risk of reader and we cannot accept any claim arising from such use or misuse.

What is a Dormant Company?

Wed, 29 May 2019 07:29:30 GMT

This may seem like a straight forward question but is slightly more complicated than it appears to be.

There are in fact two definitions of a dormant company: one for the purposes of HMRC and the other for the purposes of Companies House each for different purposes and each with different criteria.

Corporation Tax

There are a number of circumstances under which HMRC have confirmed that they will regard a company as dormant.

· A new company for the period before it has commenced business activities or trading or has any other income from investments etc.

· A company will not be considered active (see below) if it has only carried out pre-trading activities such as preparing a business plan or negotiating contracts or only incurred pre trading expenditure.

· Dormant companies might also include companies that have previously traded but have now stopped trading and no longer carry on any business activity or have other income subject to corporation tax.

· A flat management company is generally considered dormant, subject to certain conditions, as are unincorporated associations or clubs owing less than £100 Corporation Tax.

For these purposes HMRC regard a company as “active” for corporation tax purposes if it is:

carrying on a business activity such as a trade or professional activity
buying and selling goods with a view to making a profit or surplus
providing services
earning interest
managing investments
receiving any other income

An active company cannot therefore be regarded as dormant for corporation tax purposes.

Dormant companies can be used for a variety of purposes including:

· To protect a trading name.

· To hold an asset that is not expected to generate any income.

The question whether a company is dormant is an important one because a dormant company is not normally required to file accounts or a corporation tax return to HMRC. HMRC will normally write to confirm a company is dormant and that it is not required to submit accounts or a corporation tax return.

If a company is VAT registered or has a PAYE scheme it will normally be required to deregister for VAT and close its PAYE scheme.

Companies House

For Companies House purposes a company is considered to be dormant if it has no “significant accounting transactions” during an accounting period.

A “significant accounting transaction” is defined as a transaction which a company would normally enter into its accounting records although according to Companies House guidance the following transactions are not regarded as significant for these purposes:

· Payment for shares taken by subscribers.

· Fees paid to the Registrar of Companies in connection with a change of company name, registration of a company or filing fees for the submission of confirmation statements.

· Payment of a civil penalty for late submission of company accounts.

It should be noted that any limited company must submit accounts to Companies House every year. However, a dormant company can submit dormant accounts which are simpler than trading accounts but are still required to contain:

· A balance sheet containing statements above the director’s signature confirming that the company was dormant throughout the accounting period.

· Comparative figures for the previous year even if the company was dormant throughout.

· Certain notes to the balance sheet.

In addition, a dormant company can, under certain conditions, obtain an audit exemption.

It will be noted that the Companies House requirements for a dormant company are much stricter than those for HMRC in particular in relation to the “significant accounting transactions” restriction. For these reasons it may be sensible to close any relevant company bank accounts if it is intended that a company will be dormant for Companies House purposes. In addition, it will be seen that the permitted transaction for a dormant company are very narrowly restricted.

Please note that the following articles are intended for the purposes of general information only. In certain cases some subjects have been simplified through the exclusion of more detailed and complex areas of legislation not appropriate to a general article.

It is therefore important to ensure that appropriate professional advice is taken on any relevant matters. These articles are not intended to be a substitute for genuine professional advice and we cannot therefore accept any liability arising from the use or misuse of information contained in them.