I have just recived the "you might need to" letter, but I am confused.

[JustWondering25]

Making tax digital

I have just recived the "you might need to" letter, but I am confused, I know that HMRC will send me a letter to confirm if I need to start sending information quarterly.

I am self employed, self assetment, my main income is online sales, I turn over around £85k a year, but after costs of products etc, my income is around 22k..... So based on the letter received, will HMRC be using my turn over figure or how much income I earned after costs?

Based on the basic details above, will I need to start using MTD from April 2026?

Below is a copy of the wording from the letter recived from HMRC.

You may need to change the way you report your income and expenses

We're changing the way some sole traders and landlords need to report their income and expenses.

If your total income from self-employment and property is over £50,000 (before deducting expenses or taxes) in your 2024-25 tax return, you'll need to use Making Tax Digital for Income Tax from 6 April 2026 (unless you're exempt).

What is Making Tax Digital for Income Tax

It's a new way of recording and reporting your income and expenses from self-employment and property. This means you'll need to get commercial software that works with Making Tax Digital for Income Tax, which can help you to:

create, store and correct your digital records of income and expenses

send us your quarterly updates (summaries of your digital records)

submit your tax return.

Get the benefits of signing up early

You may be able to sign up now for the 2025-26 tax year and start using Making Tax Digital for Income Tax straight away. This is the best way to help you get ready and test the service.

This means you'll have:

more time to get used to the changes

exclusive access to our dedicated Customer Support Team - they'll help you with Making Tax Digital for Income Tax and with some of your other income tax queries.

 

[DWS]

Yes

 

[JustWondering25]

Yes

Thank you, so will it be similar to doing 4 lots of accounts, full bank details, full incoming, out going, expenses, or is it like 4 summarys then a full more detailed return with the 12 months in detail? All my sales are online and recorded digitally via ebay, banking is all online, so are my purchases.

 

[David Griffiths]

It's always on total turnover, and the initial threshold is £50k. So if you had £45k sales and £10k rent, you're in.

It's been suggested that you can file any load of old cobblers for the interim filings and just get the final one correct, and there won't be any problems!

 

[JustWondering25]

It's always on total turnover, and the initial threshold is £50k. So if you had £45k sales and £10k rent, you're in.

It's been suggested that you can file any load of old cobblers for the interim filings and just get the final one correct, and there won't be any problems!

Thank you, it is odd how they use the word income, as opposed to turn over... But I am a no nothing when it comes to taxes, even after many many years of been in business.

But yes, everyone is saying income means turnover in the letter.

When you say "final one" do you mean the main end of year, technically the fifth filing? That adds all income, from other none self employed sources?

 

[Newchodge]

But yes, everyone is saying income means turnover in the letter.

The clue is in the next part of the sentence:

(before deducting expenses or taxes)

 

[elaine@cheapaccounting]

Good morning

You've just got a Making Tax Digital for Income Tax letter.

It does mean filing 4 quarterly returns (made up to 5th July, 5th October, 5th January and 5th April although you can opt to do these to calendar quarters to make life easier) plus a final submission.

The criteria for the new rules is based upon the total gross income (before the deduction of costs) from both self employment plus property - so if for example you had a business plus a rental then you'd do 4 x returns for the business and 4 x returns for the property plus a final submission!

There's going to be an article on here hopefully this afternoon on Making Tax Digital for Income Tax as you'll not be alone in this new regime.

 

[JustWondering25]

Good morning

You've just got a Making Tax Digital for Income Tax letter.

It does mean filing 4 quarterly returns (made up to 5th July, 5th October, 5th January and 5th April although you can opt to do these to calendar quarters to make life easier) plus a final submission.

The criteria for the new rules is based upon the total gross income (before the deduction of costs) from both self employment plus property - so if for example you had a business plus a rental then you'd do 4 x returns for the business and 4 x returns for the property plus a final submission!

There's going to be an article on here hopefully this afternoon on Making Tax Digital for Income Tax as you'll not be alone in this new regime.

Brilliant thank you

 

[elaine@cheapaccounting]

It's been suggested that you can file any load of old cobblers for the interim filings and just get the final one correct, and there won't be any problems!

Hello David - how are you? Good to see you're still here

You're not wrong in the "file any load of old cobblers" although I look forward to the ethical debate on this. I thought (and could be wrong ) that ICAEW members were not allowed to file a return if they knew it to be wrong

I'm waiting for the "Professions'" view on this approach.

I wonder if at some point in the future quarterly tax payments will come in? Will that be the only way to get the returns "right"

 

[UK Contractor Accountant]

what a farce - so someone who has 2 self employment trades & a rental property will need to file 13 returns (4x3 +1 ) for each tax year?

maybe be vat registered as well so that's another 4 returns.

so could potentially have to file 17 returns to HMRC each year.

 

[Newchodge]

what a farce - so someone who has 2 self employment trades & a rental property will need to file 13 returns (4x3 +1 ) for each tax year?

maybe be vat registered as well so that's another 4 returns.

so could potentially have to file 17 returns to HMRC each year.

Are 2 self employed businesses treated separately?

 

[UK Contractor Accountant]

Are 2 self employed businesses treated separately?

yep

 

[elaine@cheapaccounting]

Oh and don’t forget HMRC are withdrawing their free software for those caught in the new regime. So you will need software to file the quarterly returns plus the final submission

 

[elaine@cheapaccounting]

If your turnover is under £90,000 then you can file just two figures - income and total business costs with the software working out the profit. Under £90k you do not have to split out your costs

 

[Ziggy2024]

what a farce - so someone who has 2 self employment trades & a rental property will need to file 13 returns (4x3 +1 ) for each tax year?

maybe be vat registered as well so that's another 4 returns.

so could potentially have to file 17 returns to HMRC each year.

My understanding is that you will file 1 return each quarter which will include all of your income streams. You will then file a final return which will effectively be the tax return that we do now. 5 submissions in total.

How that works software wise I've yet to see.

 

[UK Contractor Accountant]

Oh and don’t forget HMRC are withdrawing their free software for those caught in the new regime. So you will need software to file the quarterly returns plus the final submission

i think they said they will be working with software developers as they dont expect to develop any software themselves but will work with the software industry to develop free software products.

That's kind of them wash their hands of the mess they created & let the software developers have the headache. Suppose its better that way bearing in mind the hash they made of MTD sofar.

 

[Ziggy2024]

My understanding is that you will file 1 return each quarter which will include all of your income streams. You will then file a final return which will effectively be the tax return that we do now. 5 submissions in total.

How that works software wise I've yet to see.

Scratch that, I see that I am wrong!! Fancy thinking HMRC would make it simple, that is wishful thinking from me!

 

[MyAccountantOnline]

If your turnover is under £90,000 then you can file just two figures - income and total business costs with the software working out the profit. Under £90k you do not have to split out your costs

Sorry OP entirely off topic but welcome back Elaine. Great to see you back on the forum It's been a very long time!

 

[UK Contractor Accountant]

my understanding is that you wont be submitting quarterly figures but 'Cumulative" to date figures quarterly so that adjustments for errors in previous submissions are made automatically each time you file.

 

[elaine@cheapaccounting]

i think they said they will be working with software developers as they dont expect to develop any software themselves but will work with the software industry to develop free software products.

That's kind of them wash their hands of the mess they created & let the software developers have the headache. Suppose its better that way bearing in mind the hash they made of MTD sofar.

Certainly they are not developing anything themselves.

The approved software supplier list is at https://www.gov.uk/guidance/find-software-thats-compatible-with-making-tax-digital-for-income-tax

Caution ... we've researched the list and our findings are that most software is free until April 2026 (the go live date) after which there may be a charge but the fees for using are not being announced (in the main) until much later this year.

My best advice is to hold off on software selection for now until there is a better view of the total cost of ownership

 

[elaine@cheapaccounting]

my understanding is that you wont be submitting quarterly figures but 'Cumulative" to date figures quarterly so that adjustments for errors in previous submissions are made automatically each time you file.

That is correct ....

Quarter Number	Period covered by update	Filing deadline
1	6 April to 5 July	7 August
2	6 April to 5 October	7 November
3	6 April to 5 January	7 February
4	6 April to 5 April	7 May

 

[elaine@cheapaccounting]

Sorry OP entirely off topic but welcome back Elaine. Great to see you back on the forum It's been a very long time!

Hello Nicola and thank you

It's great to be back. Good to see you're here and providing great advice. You must be due a long serve award

I hope to be around now and again x

 

[elaine@cheapaccounting]

Are 2 self employed businesses treated separately?

Seems to be the case but all property income is lumped together from what I know so far but that may change ..... it's still all being developed really as the nuances of the complicated UK tax system is further understood by HMRC.

Making Tax Digital is Taking

 

[UK Contractor Accountant]

Seems to be the case but all property income is lumped together

apart from Overseas Property Income - regarded as a separate property business so another 4 returns for those.

 

[elaine@cheapaccounting]

apart from Overseas Property Income - regarded as a separate property business so another 4 returns for those.

It's a right muddle .... trying to explain this is certainly going to present challenges

And that's before we even touch on:

1. what are HMRC going to do with all these returns especially the ones that are overwritten by the subsequent quarters

2. how big is the "machine" that will be processing all the returns especially when filing could happen "at the last minute"

Interesting times ahead .... who said accounting and tax was boring

 

[UK Contractor Accountant]

it's a right muddle .... trying to explain this is certainly going to present challenges

my worry it is going to greatly increase the time spent on client affairs if we are going to file 5 returns each year instead of 1 currently for the basic sole trader.

Fees are going to have to be increased quite substantially to cover the extra work involved if time based billing is in operation.

Its a struggle at the moment for some clients to get monthly figures sent over for the monthly cis tax returns and I would imagine the same will apply for quartely income & expenses figures.

 

[DontAsk]

what a farce - so someone who has 2 self employment trades & a rental property will need to file 13 returns (4x3 +1 ) for each tax year?

maybe be vat registered as well so that's another 4 returns.

so could potentially have to file 17 returns to HMRC each year.

VAT returns are a few clicks of the mouse in VT+, I suspect other software is very similar. I spend (waste?) WAAAAY more time reading UKBF.

 

[Newchodge]

VAT returns are a few clicks of the mouse in VT+, I suspect other software is very similar. I spend (waste?) WAAAAY more time reading UKBF.

Don't we all?

 

[elaine@cheapaccounting]

my worry it is going to greatly increase the time spent on client affairs if we are going to file 5 returns each year instead of 1 currently for the basic sole trader.

Fees are going to have to be increased quite substantially to cover the extra work involved if time based billing is in operation.

Its a struggle at the moment for some clients to get monthly figures sent over for the monthly cis tax returns.

To quote Einstein "insanity is doing the same thing over and over and expecting different results"

Making Tax Digital for Income Tax is the BIGGEST change to the UK tax system in decades

Changes will be needed (both client and accountant) to make this all work

TBH it forces good practice accounting and keeping on top of the tax liability as you go

I may not necessarily agree with the approach taken or how it is being rolled out but if you have a business then keeping on top of the business finances is essential - no surprises

And there are plenty of tools around and ways of working to make this easier

It's not like we didn't know it was coming .... the project has been going for 10 years

 

[elaine@cheapaccounting]

VAT returns are a few clicks of the mouse in VT+, I suspect other software is very similar. I spend (waste?) WAAAAY more time reading UKBF.

And so will MTD for IT returns be .... as long as the data is there in the first place

 

[MyAccountantOnline]

VAT returns are a few clicks of the mouse in VT+, I suspect other software is very similar. I spend (waste?) WAAAAY more time reading UKBF.

It is a few clicks of the mouse to submit VAT returns using most software - the time involved is entering and checking the transactions.

I dont really see too much of an issue with MTD for small businesses who are already keeping good digital records using decent software and doing so regularly. It'll potentially be horrendous for those that dont or their accountants!

 

[elaine@cheapaccounting]

This might be a useful read .....

Making Tax Digital for Income Tax - The way you file your Tax Returns is changing​

https://www.ukbusinessforums.co.uk/...y-you-file-your-tax-returns-is-changing.7190/

 

[DontAsk]

It is a few clicks of the mouse to submit VAT returns using most software - the time involved is entering and checking the transactions.

But I enter and check every transaction anyway, during normal bookkeeping.

I don't need to do it again to generate the VAT return, so, like I said, the additional work to submit the VAT return is just a few clicks.

 

[David Griffiths]

Hello David - how are you? Good to see you're still here

You're not wrong in the "file any load of old cobblers" although I look forward to the ethical debate on this. I thought (and could be wrong ) that ICAEW members were not allowed to file a return if they knew it to be wrong

I'm waiting for the "Professions'" view on this approach.

I wonder if at some point in the future quarterly tax payments will come in? Will that be the only way to get the returns "right"

Hi Elaine

Great to see you back. I'm great thanks, and pretty well retired - just a couple of long standing clients/friends to deal with these days. I hope that you are keeping well

It will be interesting to see if the institutes make any comment on this. These days I'm no longer a member of the ICAEW (my choice, not theirs!) so wouldn't be constrained by their view but would still want to do the right thing. The main advantage of there being no consequences of filing said load of old cobblers is that it would be safe to let the clients do it for the interim returns and then sort out the 5th/9th/13th or whatever return in the time honoured way.

Of course the risk with this approach is that the client thinks that filing the interim returns is so easy, and the final return must be just as easy, so we should be ablee to do it for tenner!

The real question here is that if HMRC aren't going to even look at the interim returns, why should they be mandatory. (The next would be to challenge HMRC's assumption that all errors made by clients result in too little tax being paid, They seem incapable of believing that clients make errors in both directions)

 

[elaine@cheapaccounting]

Hi Elaine

Great to see you back. I'm great thanks, and pretty well retired - just a couple of long standing clients/friends to deal with these days. I hope that you are keeping well

It will be interesting to see if the institutes make any comment on this. These days I'm no longer a member of the ICAEW (my choice, not theirs!) so wouldn't be constrained by their view but would still want to do the right thing. The main advantage of there being no consequences of filing said load of old cobblers is that it would be safe to let the clients do it for the interim returns and then sort out the 5th/9th/13th or whatever return in the time honoured way.

Of course the risk with this approach is that the client thinks that filing the interim returns is so easy, and the final return must be just as easy, so we should be ablee to do it for tenner!

The real question here is that if HMRC aren't going to even look at the interim returns, why should they be mandatory. (The next would be to challenge HMRC's assumption that all errors made by clients result in too little tax being paid, They seem incapable of believing that clients make errors in both directions)

Hello David

You are far too young to retire Get back to work immediately

As we all know there are many "unclear areas" with MTD for IT - I think that's the best way of saying it.

Of course the main objective was to close the tax gap. My view on that was 1) those who evade completing one tax return a year certainly ain't going to change their behaviour if told to do 5 returns a year 2) how many previously unrecorded / forgotten about costs will be claimed once regular bookkeeping is enforced - less tax paid rather than more 3) there's better ways of doing it all of this like educate and train (carrot approach) rather than beat people with a stick 4) can HMRC cope with this new system

But none it that matters as it will happen anyway

Interesting times ahead

I fear that what is coming may have been severely underestimated

 

[Tables Force]

Hello David - how are you? Good to see you're still here

You're not wrong in the "file any load of old cobblers" although I look forward to the ethical debate on this. I thought (and could be wrong ) that ICAEW members were not allowed to file a return if they knew it to be wrong

I'm waiting for the "Professions'" view on this approach.

Well, the ICAEW has put out some "interim" guidance. Will have to wait and see how much/what will change as HMRC continue to develop and refine their viosion of what the final MTD journey will look like for their "customers".

www.icaew.com/technical/tax/working-in-tax/pcrt/topical-guidance-on-applying-professional-standards-to-mtd-for-income-tax-services

 

[elaine@cheapaccounting]

Well, the ICAEW has put out some "interim" guidance. Will have to wait and see how much/what will change as HMRC continue to develop and refine their viosion of what the final MTD journey will look like for their "customers".

www.icaew.com/technical/tax/working-in-tax/pcrt/topical-guidance-on-applying-professional-standards-to-mtd-for-income-tax-services

Good

At least they say “a member should take care not to be associated with the presentation of facts they know or believe to be incorrect or misleading”

 

[John Martin]

It's been suggested that you can file any load of old cobblers for the interim filings and just get the final one correct, and there won't be any problems!

I'm sure HMRC will soon put a stop to that once they realise people aren't playing ball with them.

Thank you, it is odd how they use the word income, as opposed to turn over.

Yes, you'd expect HMRC of all people to know the difference between income and turnover. If they can't get the basics right, is it any wonder people make a mess of their tax affairs.

I don't suppose there's much incentive for them to explain things properly or make tax simpler. It's a nice little earner for them, issuing all the fines when people have messed up.