HMRC’s Making Tax Digital scheme is a new scheme enlisted by the government. It’s there to aid companies and individuals in the process of tax returns and affairs in their attempt to digitalise tax in the Country. The government website covers the ins and outs of Making Tax Digital and you can read these here. However, we are going to delve into MTD in this blog post, to make your life easier.
In short, Making Tax Digital is the requirement to use digital software for recording transactions and submitting information to HMRC from said software.
What are the key dates?
Making Tax Digital – VAT. from 1st April 2022.
Making Tax Digital – Corporation Tax. The government will provide businesses with an opportunity to take part in a pilot for Making Tax Digital for Corporation Tax and will not mandate its usage before 2026
Making Tax Digital – Income Tax. Self-employed businesses and landlords with annual business or property income above £10,000 will need to follow the rules for Making Tax Digital for Income Tax from 6 April 2024. You will need to:
keep records of your business income and expenses in a digital format
send quarterly updates of your business income and expenses to HMRC
finalise your business income and submit your final declaration
There are several types of Digital software that make this process achievable. A full list of authorised software can be found here.
What is Digital Software?
Digital Software is in essence an accounting system. They are employed by companies to store and manage financial information. Accounting systems are absolutely necessary when managing a business as they are crucial to keeping track of income, expenses, and all financial activities. All of these are vital to monitor when it comes to creating and submitting tax returns.
What software is available?
There are currently 559 software programmes on the HMRC authorised list as of today, so there are plenty of options to choose from.
What do you need to think about?
Bank Reconciliation – Most software will provide automatic links to bank accounts so that transactions are automatically imported in.
Software that enables email to bill options – Some software provides the ability to take pictures on your phone of receipts and forward invoices from your email directly into the system which can all speed up the admin side.
Ease of use – Everyone has their own preference, but you need to be confident with the system you are using and ensure it meets your needs.
Doing your own bookkeeping or outsourcing. As quarterly returns will be required you will need to keep on top of your bookkeeping frequently to meet return dates. Keeping on top of it means that you can run monthly reports on your business and really keep on top of how you are doing financially. Bookkeeping is the art of processing each transaction in your business accurately and in line with tax requirements. If you are not outsourcing this and wish to do it yourself, then getting some training is recommended so that you are “tagging” everything properly and in line with HMRC requirements is recommended.
Reporting – Reporting is so important as it provides you with information about your business in real-time. As a business user, you should be looking at your Profit and Loss report monthly and know what you are looking at!
At FD for You Ltd, most of our customers use Xero as an easy-to-use accountancy software. Xero allows for on-the-go use, online invoicing and reconciliation in seconds for even faster and more effective accounting. After a 30-day trial, you can activate your account and provide the necessary details for your business. You can choose to link Xero to your bank accounts and decide whether to accept payments electronically using a payment gateway or via bank transfers.
Xero covers all the necessary bases of VAT returns, invoicing, payroll, bank reconciliation, bill paying and expense claiming.
We believe that Xero is an excellent choice for bookkeeping software. Did you know that at FD for You Ltd we also offer training on how to use Xero effectively? So, you can enjoy easy and affordable accounting from anywhere.
It has fantastic features that can enable you to speed up the administration side, including a free Hubdoc account and customisable reporting that can help you track your business finances in real-time.
Choosing the right software comes down to personal preference and business requirements so if you want to discuss any options then speak with your accountant!
Tips on Making Tax Digital
Sole traders do not legally have to have a bank account solely for business in the business name. Therefore, personal accounts can be used. However, as you will need to process the transactions from the bank account it is highly recommended that you use an account solely for business purposes (even if it is in your personal name).
Know your Bookkeeping – This is such an important part that you are tagging the transactions accurately as it can impact your tax. Either get training or outsource to a professional.
Start using software now if you are not already, 2024 will come around quickly and leaving last minute can be stressful
Talk to your accountant if you have questions!
Get in touch with FD For You Ltd if you have any other queries regarding Making Tax Digital.