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Making Tax Digital (MTD) – The Next Stage
Making Tax Digital (MTD) requires taxpayers to maintain electronic records and ‘communicate’ with HMRC digitally. Though this is not due to come into force until April 2024 all business owners should now be preparing for the next stages of the MTD programme.
MTD for income tax
Making tax digital for income tax will apply initially to unincorporated businesses and landlords with business income or income from property of more than £10,000 a year.
Under MTD for income tax, taxpayers will need to send quarterly summaries of income and expenses to HMRC using software. An end of year finalisation process will enable other income and reliefs to be taken into account so that the final tax position for the year can be determined. This process will eventually replace the self-assessment tax return.
Businesses and landlords will need to keep electronic records of income and expenses to comply with the requirements of MTD for income tax.
What does this mean in practice?
The requirement to submit electronic returns each three months shall give most business owners a stark choice – either incur extra costs by asking their accountants and book keepers to do this work for them or submit the returns themselves. The first of these options is expensive, the second, daunting. The most common approach shall doubtless be a mixture of the two with business owners submitting their own quarterly returns which are then checked once a year (and amended if necessary) by their accountant.
With the right software in place there is no reason to panic, indeed the MTD regime kicked off with VAT registered business several years ago and most business owners have found it easier and less time consuming to keep up to date and accurate records under the new rules as many accounting products now easily link into your bank account, accept scans or photographs of purchase invoices and much more to make the book keeping process as simple as possible.
Here at willows accountancy, we shall be discussing with all clients their needs and helping choose the software which suits them best, we can even give short tutorials to make sure everything works well.
The continued roll out of Making Tax Digital will result in lots of panic and worry as well as extra cost to small business – government advisors believe initial set up costs of between £300 and £600 as well as ongoing software costs of between £100 and £200 per annum shall be common. But with good and timely planning this forced move will lead to business owners having a much better idea of their profits and taxes and, in most cases, shall lead to a much simpler book keeping and accounting experience.