Making Tax Digital for Income Tax – What you need to know
HMRC has deferred the start of Making Tax Digital (MTD) for Income Tax, due to the Government recognising the challenges faced by many UK businesses in the wake of the pandemic. Though delayed, tax digitalisation will definitely happen, and there are a few things to be aware of.
Here’s an update on everything you need to know about the switch to digital tax.
Who, What and When?
If you are a sole trader or partnership business with an income in excess of £10,000 per year, you will need to start recording your transactions digitally from April 2024. From early August 2024, you will have to start submitting details of your business information on a quarterly basis to HMRC.
This includes landlords with investment properties who have income over the limit.
For now, this does not apply to Limited Companies. They have an additional two years to wait (2026).
This means that we are now roughly two and half years out from even the smallest businesses having to keep their records digitally.
What will I need to do once it starts?
Taxpayers will need to adopt some type of accounting package that is able to talk to HMRC systems. This will basically mean subscribing to one of the desktop or online systems. These include Xero, Quickbooks, Sage, Freeagent, and Kashflow.
That sounds like a lot of work – can someone help me?
Yes, you will still be able to have an accountant acting as an agent for you and they can help you as much or as little as you like. We are qualified to use all of the main systems, and we can do all the bookkeeping for you. Or, we can just check what you’ve done and file on your behalf.
The more you do yourself, the less you will have to pay your accountant.
We expect to have to help our clients get set up, show them how to do the basics, and check the submissions before they are sent. Once they’ve been trained up, clients will be at liberty to either manage it themselves or have us do it on their behalf – whatever works best for them.
The software has a lot of great features to make your life easier, including:
- They can download transactions directly from your bank.
- You can upload invoices to the systems using your mobile phone.
- They can be programmed to automatically take care of regular entries.
- They can use artificial intelligence to suggest how transactions should be treated.
Should I be doing anything now?
If these changes apply to you, we recommend thinking about the following:
- Open a separate business bank account to keep things simple and reduce the number of transactions that need processing. Some banks like Mettle offer free banking so it might not be necessary to incur high bank charges.
- Have a look at some of the software solutions out there. See which software suits you – most will offer a free trial. Additionally, some bank accounts offer free subscriptions to the software.
- Talk to your accountant – we are happy to advise on what would work for you.
- Now might be the time to take the plunge and start using this type of technology as an early adopter. You might find that some of the features make it no more onerous than your current manual system.
- Make sure you are signed up to receive our updates and connect to us on social media as we will be releasing further information and advice over the next couple of years.