Sole traders can now volunteer to take part in HMRC’s making tax digital (MTD) income tax pilot. The MTD system requires businesses to keep records digitally and send income tax updates to HMRC, rather than filing a self-assessment tax return.
The pilot is initially only open to sole traders with just one business. Landlords will be next to be invited, with further groups of taxpayers being brought in as new functionality is added.
The pilot applies to accounting periods that end after 5 April 2018, and a self-assessment tax return may still be necessary if you have other income. The advantage of using MTD is that you’ll see an estimate of how much tax you owe as you go, rather than waiting until the end of the tax year.
How it works
HMRC has also published the first list of software compatible with MTD for income tax, but there is currently only one supplier. You may want to wait for your current software supplier to provide an MTD compatible product as the list is expected to grow soon.
It is expected that the MTD system will be mandatory for some businesses from April 2020.