What do you need to know about Making Tax Digital?
Making Tax Digital is a term you may have heard of and seen in the past couple of years, but if it hasn’t yet affected you and your business, may not have paid much attention to it. However, now is the time to get familiar with the scheme as it won’t be too long until it will apply to you.
What is Making Tax Digital?
Making Tax Digital, also known as MTD, started it’s roll out back in April 2019. It was initially set up for businesses that had a turnover above £85,000 and were registered for VAT. However, it will now be extended to include all VAT registered businesses from April 2022.
HMRC are also planning the next stages for MTD to be rolled out which will be for income tax. This will start from 6th April 2023 and will affect self-employed businesses and landlords with an annual business or property income above £10,000 (the majority of self-employed individuals and landlords). It will apply to the next accounting period that starts on or after 6th April 2023.
What does Making Tax Digital mean for you?
MTD for Income Tax Self Assessment (ITSA) will mean that you, as a business or landlord, will need to send a quarterly summary of your business income and expenses to HMRC using MTD compatible software.
In response, you will receive an estimated tax calculation based on the information provided. At the end of the year, you can add any non-business information and finalise your tax affairs using MTD compatible software. This will replace the need for a Self Assessment Tax Return.
This means that your bookkeeping needs to be processed on a quarterly basis, rather than annually, in order to prepare this summary document to be submitted to HMRC.
This may seem like more work, but actually it will benefit you. It will mean that you have an estimate of your tax as you are trading throughout the year, rather than months after your year end. All of the deadlines for payment of tax are remaining the same (31st January) but you will know what your liability is much earlier, allowing you to plan for it easier
What should I do now?
Do you leave your bookkeeping until the end of the year?
Do you still have paper records?
We can help you. At Turas Accountants, we currently use digital MTD compliant software for most of our clients’ bookkeeping. Even if you are currently dropping your paperwork to us annually, we are entering data into cloud-based software for you already.
We can provide you with advice and training to utilise the cloud based technologies used in the practice and help you with the transition of preparing your bookkeeping more regularly. We may be two years away, but it will creep around very quickly. If you can make a start now to adjust how you organise your finances, the shock to quarterly reporting will not be as great.
We are here to help and we don’t want to leave anyone behind. If you would like to speak to us about submitting your bookkeeping electronically then please get in touch on 01952 882434 or [email protected]