What is MTD and should you be worried?
MTD stands for Making Tax Digital, but, what does it mean for the small business owner and should they be worried?
I hate to say it, but ………"winter is coming".
We already have Making Tax Digital in place for filing VAT Returns to HMRC, though due to the Corona Virus, we have seen HMRC extend the need for small businesses to file digitally to the 1st April 2021. However, if you file a VAT Return and you aren’t exempt from digital filings you need to get this sorted as quickly as possible.
Investing in Bookkeeping software to run your accounts and file your MTD Vat Returns is advisable. There are still ways around just filing the vat figures digitally, but at some point, this will end. So, I would suggest biting the bullet and getting your accounts online especially in light of what is happening next with MTD.
MTD Income Tax
Yes, you heard it right, MTD will also roll out to any small businesses and Landlords with an income over £10,000, that’s not profit but turnover. It will likely affect a vast majority of the self-employed and no one’s talking about it, until now…..
HMRC want to eradicate the annual tax return
It is HMRC’s vision ‘to have a transformed tax system’, they state their main goal of MTD is to ‘make tax administration more effective, more efficient and simpler for the taxpayer’.
Do they think we were born yesterday?
HMRC simply want to recuperate the £8.5 billion they said they missed out on in 2018/2019 from ‘avoidable mistakes’.
So what’s changing?
HMRC wants businesses to track their tax affairs digitally and update them at least quarterly or more often if preferred.
Currently HMRC are running a pilot scheme where they have asked some businesses to join (and you can also volunteer to join the scheme if you want). They say that the third-party software won’t be filing mini tax returns each time, but it will keep the business owner more informed (and them) of what is due tax wise. The current information is that for the tax year 6th April 2021 to 5th April 2022 you will need to file five returns, four being the quarterly ones and then a final one.
You might already be doing advance payments for your tax and HMRC say that you can pay what is due as you file each of the new style returns voluntarily but don’t be fooled, this will change.
What's the upside?
"Surely it can’t all be doom and gloom for the business owner" I hear you cry. It won’t be, if we are all prepared. Just like the squirrel who runs around through all the good months collecting nuts, we too should be preparing.
We need to stop thinking about doing our year end accounts once, with our carrier bag or box of receipts, we need to think about how to do them as we go, daily, weekly, monthly. There are many software packages out there that can help us with this and some that can integrate with our bank to drop in our transactions automatically. They can even take photos of our receipts to leave an electronic copy attached to the entry.
However, unless you are a Bookkeeper or Accountant, I would suggest you get specialist advice to what system would work best for you and your business, not one that suits your Bookkeeper or Accountant. I’ve noticed that some banks are adding bookkeeping functionalities on their apps though I would suggest using a recognised online bookkeeping package such as QuickBooks or Xero as they are the current leaders to taking MTD to the next level.
Can I do it myself?
Yes, you could do the returns yourself but in my experience another set of eyes (and eyes that know what they are talking about) will make better sense of your numbers.