What are Simpler and Detailed categories for Making Tax Digital for Income Tax?

When filling out business information for Making Tax Digital for Income Tax, business customers can choose between Simpler or Detailed categories, but whether you can use this option depends on the annual income you expect your business to earn for the tax year.

If you expect your business to earn less than the current VAT threshold in the tax year, then you can use either:

Simpler categories - Categorise all transactions as either income or expenses

Detailed categories - List of categories which breaks down the income and expenses in more detail

If your business earns exactly or more than the VAT threshold during the tax year, you will need to go back and update all transactions for that year to detailed categories.

Once you choose either simpler or detailed tax categories, you are not currently able to switch to another one until the next tax year. Monzo is looking into building the option is switch category types soon!

To find out what the VAT threshold is as well as more details about simplified categorisation, please check HMRC’s website about record keeping requirements for Making Tax Digital.