We understand that it applies to the total gross income where the individual or entity has more than one trade or property business. For example, suppose the individual has £6K of rental income and £7K of sales from a sole trader business. In that case, they will exceed the limit and be in scope.
In line with the exemptions for MTD for VAT, individuals should not have to follow the MTD for Income tax rules if any of the following apply:
- It’s not reasonably practicable for them to use digital tools to keep their business records or submit quarterly returns due to age, disability, remoteness of location or any other reason.
- They are subject to an insolvency procedure.
- The business is run entirely by practising members of a religious society or order whose beliefs are incompatible with using electronic communications or electronic records.
- Non-resident companies
- Trustees, executors, and administrators
- Foreign businesses of non-UK domiciled individuals.
Where any of the above apply, the individual has to apply to HMRC to claim an exemption, with HMRC having 28 days to either grant or deny the application. Where a business has already qualified for an exemption from MTD for VAT, they will also be exempt from MTD for Income tax.
What Is MTD For Value Added Tax (Vat)?
As a VAT registered business, there is increased management of cash flows. A separate VAT account is needed in which VAT on sales is credited, and VAT on purchases is debited. VAT registered businesses collect VAT from their customers on behalf of HMRC, report it correctly using recommended software by the HMRC, and ultimately pay the correct VAT on time. Any excess VAT collected is paid to the HMRC, and the amount which is overpaid as VAT can be reclaimed from the HMRC.
Making Tax Digital (MTD) for VAT requires VAT-registered businesses with taxable turnover above the VAT registration threshold (currently £85K) to keep records digitally and submit their VAT returns using MTD software. Most businesses have had to submit MTD VAT Returns for periods starting on or after 1 April 2019. This will however be mandatory for the remaining VAT registered businesses by 1 April 2022.
All the VAT registered businesses who reach their annual taxable income above the VAT threshold, currently at 85k, are required to keep track of Making Tax Digital rules and regulations, keep their VAT records digitally and submit their VAT Returns using MTD software.
The recordkeeping for the transactions is almost the same as before such as keeping the VAT record for all sales and purchases, keeping a separate VAT account, issuing correct VAT invoices, but these must be recorded digitally by using HMRC approved software. The VAT registered businesses will have to submit their VAT returns to HMRC in quarterly sessions by using approved software.