Did you know that if you bring in more than £10,000 income as a sole trader or landlord, you’ll have to comply with Making Tax Digital (MTD) from April 2023?
This announcement slipped out quietly between budget statements, last summer when most of us had other things on our minds.
Even those who did notice weren’t sure whether it applied to them thanks to the Government’s slightly unusual wording – or what it means in practice.
Because you’re busy, here’s the quick version: you have to take this seriously, or potentially face penalties; but don’t worry, it’s not as difficult to comply as some people would have you believe.
Here at Green & Peter, we use QuickBooks, Xero and other HMRC-approved cloud accounting packages to make MTD compliance easy and put you a step ahead of the game.
What is MTD?
Just in case you don’t know – and unless you’re as obsessed with tax as we are, it’s possible – MTD is the Government’s scheme for getting the UK tax system entirely online.
The chances are that you’re already filing your annual tax return online. MTD takes things further again, insisting that your financial records are digital, and linked, all the way through.
That means no paper records, no manual entry, no copying and pasting from one document to another. When you report your finances to them, HMRC wants to be able to trace every transaction and item back to its root.
It’s already started a gradual rollout, with MTD for VAT implemented in April 2019, and more businesses are set to be brought into that scheme next year.
What’s the timeline?
MTD for income tax self-assessment (MTD for ITSA) is the next big change on the cards, due to kick in from 6 April 2023.
In the past, HMRC has sometimes allowed MTD deadlines to slip. But, this time, it looks as if they mean business. That’s partly because, during the pandemic, the lack of digital recording and reporting made administering support schemes like self-employed income support and the furlough scheme all the more difficult.
MTD for ITSA means means you’ll need to:
- keep records digitally, using compatible software
- submit four quarterly updates to HMRC
- finalise your tax affairs with a final end-of-year statement that includes any non-business tax information.
To complicate matters, planned changes to tax rules could also affect the date businesses need to start reporting under the scheme.
It’s a bit too complicated to go into here, and very technical, but the gist is that ‘basis periods’ (the year in which profits are taxed) is sometimes different to the national ‘tax year’.
The Government plans to move to a ‘tax-year basis’ system from 2023/24, so a business’s profit or loss for a tax year is the profit or loss arising in the tax year itself, regardless of its accounting date.
They’re doing this to simplify the system, which it will, in the long-run. But in the short-term, it could cause chaos, with some businesses being required to report under MTD a year earlier than they expected.
It might not happen, or at least not yet because business groups and accountancy bodies are pushing back. Watch this space. If you’re in any doubt, talk to us.
Further down the line, MTD for corporation tax is due to come into effect from 2026, affecting profit-making incorporated businesses. That date isn’t set in stone but it’s the one we’re working towards.
What you need to do
To make sure you’re compliant with MTD, the simplest solution is to start managing your accounts with a cloud accounting package such as Xero or QuickBooks.
Almost any cloud accounting app designed for the UK market will be compatible with MTD but there’s an advantage to using the big names. The software tends to be more evolved, for one thing. They’re also fast to release updates to take into account changes in UK tax law.
If you’d like to talk through your options and get expert advice on MTD compliance, give us a call or drop us a line. We’ll ask the right questions, get to understand your setup and do what needs to be done to get you straight as soon as possible.
After all, the last thing we want is anyone feeling stressed or panicked as that April 2023 deadline approaches.