HMRC has just published detailed guidance on how Making Tax Digital for Income Tax (MTD) will work for buy-to-let landlords and sole traders with qualifying income over £10,000 and which will see the end of self-assessment tax returns for those taxpayers
The new income tax framework for Making Tax Digital will be mandatory from 6 April 2024 and the definition of qualifying income is critical to how the system will work.
The new system will replace self-assessment tax returns for anyone who qualifies for MTD for income tax as they will have to submit all non-qualifying income through the personal tax account system instead.
HMRC has now provided a clear definition of what will be included in ‘qualifying income’, how to report other income and how residence and domicile affect qualifying income.
The qualification criteria is very narrow and only includes revenue from buy-to-let rentals and self-employment income, for example, but not income earned from a job and paid via PAYE.
The HMRC guidance states that ‘qualifying income is the combined income that you get in a tax year from self-employment and property income sources. We assess this before you deduct expenses (gross income or turnover). All of your qualifying income must be reported through Making Tax Digital compatible software.
‘All other sources of income reported through self-assessment, such as income from employment, dividends or savings, do not count towards your qualifying income. You will need to report income from these sources using either your Making Tax Digital compatible software (if it has the functionality) or HMRC online services account’.