MAKING TAX DIGITAL (MTD) FOR INCOME TAX AHEAD OF THE 6 APRIL 2023 DEADLINE
Introduction
The market for cloud accounting packages has matured significantly in the last 2 years.
Digital reporting and digital tax accounts is a reality and by April 2022 all VAT registered businesses will be online.
Self-employed businesses and landlords with annual business or property income above £10,000 will need to follow the rules for MTD for Income Tax from their next accounting period starting on or after 6 April 2023.
The Government is running a pilot scheme where businesses can use the online service for Making Tax Digital for Income Tax.
See: https://www.gov.uk/guidance/sign-up-your-business-for-making-tax-digital-for-income-tax
It is expected corporation tax will become digital in 2026.
There are now many software providers offering a variety of products. This guide is not concerned with the pros and cons of one provider over another, it’s about moving your clients away from a desktop package, spreadsheet or manual records and onto the cloud ahead of the April 2023 Making Tax Digital (MTD) deadline when HMRC will have moved most unincorporated businesses to a digitalised tax system.
This is going to have ramifications to the way we work with non VAT registered clients and to the way these clients have to interact with HMRC.
What is “Making Tax Digital”?
Making Tax Digital (MTD) is a government initiative to modernise HMRC’s tax system, with the aim of making the whole process of administrating tax simpler and more efficient. All of your tax information will be in one place (your digital account) and you will be able to pay tax based on your business activity during the year. You can upload and update your tax account in real time.
Why is HMRC introducing it?
Making Tax Digital is intended to help you better keep track of how much tax you owe – or how much you are due back – throughout the financial year.
Accurate Tax Information
Replacing paper-based bookkeeping with digital tax accounts will let you check the information HMRC holds about you is 100% correct.
Reduced Errors
Making Tax Digital’s new reporting function will allow HMRC to look at your tax information almost immediately, reducing human error from data input.
Easier to understand
HMRC anticipates taxpayers will better understand how much tax is owed within the digital tax account – much like online banking.
Easier contact with HMRC
Making Tax Digital will make it easier for you to contact HMRC online via webchats and secure messages.
Will it affect me?
If you own a business, you are self-employed and you pay income tax, national insurance, VAT or corporation tax, then it is quite likely you will be affected. This means you could be required to keep track of your tax affairs digitally using MTD compatible software, and to update HMRC at least quarterly via your digital tax account. Eventually this will abolish the annual tax return. This will be the law and there will be penalties for non-compliance.
When is all this happening?
MTD for income tax should become law from 6 April 2023. MTD for income tax will apply to the self-employed, partnerships and to those who receive income from property, with gross income from these sources combined above a threshold of £10,000.
The Government is running a pilot scheme where businesses can use the online service for Making Tax Digital for Income Tax.
See: https://www.gov.uk/guidance/sign-up-your-business-for-making-tax-digital-for-income-tax
What should I do about MTD?
Talk to us – the good news is that you can reduce your running costs and streamline your accounting by complying with the new rules!
In the last two years our accountants in London have been working with our clients to help them streamline the way they keep their books and help them prepare for digital bookkeeping ahead of the law change.
Just suppose you:
- Took a photo on your phone of a purchase invoice and it was posted automatically;
- Had a system where your bank fed your data directly into your accounts on a DAILY basis;
- Could see your results, who owes you money, who you owe and your business bank balance 24/7, 365 from your smart phone;
Announcing our new cloud accounting packages for our clients, so if you would like:
- A clear picture of your current financial position, in real-time.
- Your accounts 100% online, so there’s no software to install and everything is backed up automatically; and
- Upfront accounting software costs eliminated – upgrades, maintenance, system administration costs and server failures are no longer an issue.
Then let’s talk! Call us to arrange a demo on 020-3026-8614
Help with Making Tax Digital
Our accountants in Ealing will work with you to prepare for Making Tax Digital. As small business owners ourselves, we fully understand what is required to manage your business records digitally. We’ve spent a great deal of time training and developing the right support services to help small businesses through this period of change.
HMRC will not be offering software to help you report quarterly, so we have already partnered with leading software’s to help make managing your accounting records easy, wherever you are.
If you would like our accountants in London to help you through these changes then call us today on 02030268614 or contact us online here to arrange a free initial consultation.
The information provided above is based on current guidance from HMRC and may be subject to change. Please consult us before taking any action.
Please contact us about helping you to comply with the new rules. We are cloud accounting specialists, and we can train and support you with the right software.
