Making Tax Digital for Income Tax is a part of the government’s plans to make it easier for businesses and individuals to manage their tax affairs and get their taxes right.
Their main element is to move the recording keeping from manual records, over to software, which in HMRC’s eyes will:
- enable some efficiencies, as they recognise that the world is a busier and faster paces environment, and that time has become more premium.
- reducing errors, in that software can have built-in checks (from simple addition to the expectation of values), but also to stop errors in the initial data entry into the system.
- more regular reporting – Until an annual return is filed, HMRC are not aware of what taxes are due. (and neither are a lot of taxpayers)
- Doing things more often will mean that it becomes more efficient for the taxpayer to complete, and also easier to complete.
Making Tax Digital for Income Tax means that all sole traders and Landlords with annual business income or property income of more than £10,000 will need to be compliant from 6th April 2024.
These are
- keeping records of your business income and expenses in a digital format.
- sending quarterly updates of your business income and expenses to HMRC
- finalising your business income and submitting your final declaration.
In September 2021 it was announced that the introduction of Making Tax Digital for Income Tax was to be pushed back to 6th April 2024, from 2023, which gives many individuals and landlords a precious extra year in order to contemplate and start to move their records over to a digital format ready for this.
We have found that many of our existing sole trade and Landlord clients who have already transitioned their business record-keeping over to software such as Xero are already seeing the benefits in this, even before they are required to submit any information to HMRC quarterly.
Visibility of their financial and tax position, the efficiency of keeping their records up to date, ability to share this data seamlessly with their business partners and us, their accountants makes decision making easier, as the information is there and up to date.
Remember that changing the way you keep your business records is not just about changing the format, but it will also allow you to review many of your other systems and processes, and that other improvements and alterations are likely to come from this.
We have helped coaching and retail clients to automate some of their sales processes by utilising software, other business owners have found more time to spend in their business or personal lives due to small incremental changes.
If you are currently a business owner that is still using spreadsheets or other methods like accounting books, (or just a shoebox), and want some proactive help in transitioning ready for the introduction of Making Tax Digital for Income Tax, please do not hesitate to contact us.