Sole Traders and Landlords, are you ready for MTD for Income Tax?
Making Tax Digital is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs.
HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world. Making Tax Digital is making fundamental changes to the way the tax system works, transforming tax administration so that it is;
• more effective
• more efficient
• easier for taxpayers to get their tax right
Making Tax Digital for sole traders will launch in April 2023 and apply to all self-employed people and landlords whose income is over £10,000 annually. For some this will bring about the need for significant change to the way their accounting records are kept.
How will MTD affect you?
If you are one of those people who sits down on the 30 January with the pile of receipts that have sat in the drawer for the year there are big changes coming your way……..
Digital quarterly updates to HMRC;
You will need to keep digital records of all your business income and expenses using MTD compliant software. This means that every business transaction will have an ‘electronic signature’. These signatures will then be submitted to HMRC every 3 months. After you have sent an update you will then be able to see a year to date calculation of how much tax you owe at any time, this is based on the information you provide in the summary.
The timing of the quarterly updates is determined by the accounting period of your business but typically the 4 quarters will be in line with the tax year;
• 6 April to 5 July
• 6 July to 5 October
• 6 October to 5 January
• 6 January to 5 April
Send a final declaration every year;
At the end of your accounting period, you will need to finalise your business income and expenses.
If you have any further personal income and reliefs you claim such as foreign income, pension income, dividends etc. you will be able to use your MTD compatible software to add this information.
You will then have the final tax figure for the year and this replaces the need for a Self-Assessment tax return. You will continue to pay any tax you owe by the 31 January the following year as you do now.
Why do I need to think about this now?
Whilst April 2023 may seem a long way off it takes time to build new habits into our everyday lives so the sooner you take action to prepare and adjust to your new way of business record keeping the easier the transition will be in 2023;
The change in your working practice where, every 3 months, you have to ensure your paperwork is in order to submit the figures through to HMRC will mean you have to be more organised than you perhaps currently are.
You will need to choose a MTD compliant software package, set it up (correctly) and learn how to use it. Do you have the time to do this, do you want to do this or would you prefer to delegate all of this to someone else?
If you use a personal bank account for your self-employed business you may want to consider moving to a business bank account so you don’t have to spend the time, and remember time is money, logging all your personal non business transactions.
How can we help you?
We can help you prepare for and implement the transition from paper to MTD compliant reporting. From general advice about choosing the right MTD compliant software for your business for you to then go it alone, a helping hand to oversee and review your transactions to a complete service of software set up, bookkeeping and management reporting.
We love the small business and have partnered with what we consider to be two of the best MTD compliant software packages for the small business, FreeAgent and Xero. For the micro individual sole trader you can’t beat FreeAgent award winning simple software that’s so easy to use and has a fantastic phone app. For the bigger business the equally impressive award winning Xero software with a large choice of app integrations and a vast array of reporting options will keep your finances on track.
With monthly packages starting from as little as £19 per month including tax return production why not get in touch today to discuss your transition to MTD.