You may have heard the term ‘Making Tax Digital’ or ‘MTD’ – but do you know what it is or what it means for you?
Making Tax Digital (often referred to as MTD) is part of the government’s plan to become one of the most digitally advanced tax administrators in the world. The aim is to improve efficiency, effectiveness and ease of compliance. HMRC are making it easier for businesses to stay on top of their day-to-day accounts.
The plan is to end paper returns and move everything online. Digital returns will mean more transparency and also more accurate returns as tax summaries will need to be submitted quarterly through software, giving HMRC an accurate view of your accounts.
When will these changes happen?
MTD started with VAT returns in 2019.
The next phase will be MTD for Corporation Tax and Self Assessment Income Tax. This will affect all businesses, sole traders, partnerships and landlords. It was due to begin in April 2020, however it has been delayed and we are currently looking at a date of April 2026 for businesses with a turnover of over £50,000 and April 2027 for businesses with a turnover of over £30000.
What does this mean for me?
Let’s start with the bad news and get it out the way, so we can then focus on the benefits!
Change! It’s a scary word, and not liked by many, but unfortunately things are changing, and you will need to make some changes:
For a start HMRC will require you (or your tax advisor) to submit returns online through software. Many business owners are still using paper records, or Excel spreadsheets, but unfortunately these are not compatible with the new regulations.
There will be more reporting deadlines for those of you not already submitting quarterly VAT returns and everyone affected by MTD will need to start filing quarterly returns.
More information will be submitted to HMRC, therefore you may feel you have a loss of privacy and may not be comfortable that some of your electronic transactions will be visible to HMRC. You will though be able to review the information being filed and fix mistakes before you submit.
So now for the good news, I promise there is plenty!
Here at PPF we think MTD is a good thing for our clients, and businesses as a whole. It will force people to stay on top of their finances, which can only be a good thing – more visibility into what you are earning and the tax due. Here are more benefits with MTD:
You’ll submit every three months
This will take away the stress of a whole years work at the end of the year, probably quite close to the deadline. Doing it in quarterly returns means you’ll only be doing 3 months at a time rather than 12 – less work, less scary to manage and less putting it off as it seems such a big job!
Going digital will mean a lot less paperwork
For a start you will be able to keep digital copies of receipts, so you can throw away the original paper copies. Computer software and apps will make an automatic record of your income and outgoings – you (or your tax advisor) will just need to check the information and then upload to HMRC each quarter. No more boxes or carrier bags of receipts cluttering up your home!
Keep on top of the tax you owe
Quarterly returns will also mean your tax is calculated quarterly, so you’ll be able to keep on top of the tax you owe and be more organised. You will be able to put money away each month or quarter to ensure you have enough for the tax bill. No more panicking and trying to find the money days before the payment deadline.
Have a more thorough picture of your business during the year
Quarterly reporting will also mean you have a more thorough picture of your business during the year. You will know how well you are doing and not have to wait until the end of the year (or sometimes even later) to see how much money you made that year. You’ll be able to keep track of your income and see your goals being met. It will also mean if you are a sole trader and you’re doing well you will be able to transfer your business to a limited company sooner, meaning you can make the most of the tax benefits in doing so.
Lower your tax bill
I’m hoping you’re already as on board with MTD as we are, but I have one last benefit to highlight. As you’ll be more on top of your finances during the year you’ll be able to make more strategic decisions to lower your tax bill – you’ll be able to make additional contributions to your pension, or make other investments during the year (i.e. buying the nice shiny laptop you’ve had your eye on!), which could lower your tax bill. These cannot be done after the year has ended!
What do I need to do next?
My first piece of advice will be to start preparing now – do not leave it until the last minute. If you wish to make the submissions yourself then it’s time to start looking at MTD compliant software options. At Pink Pig we exclusively use Xero and they have been named as one of the compliant offerings.
If you already use Xero to file your VAT returns (either directly yourself or via us or another accountant) then the great news is you are all set and ready to go.
All of our limited company packages are MTD compliant and already include quarterly reporting and tax estimates. We will be taking this one step further and filing these quarterly reports as and when required. For our VAT clients there will also be no changes as everything is already compliant, we will just be filing the returns in a slightly different way through Xero’s new function.
How much will MTD cost me?
Well the good news is if you’re already a PPF client (as I mentioned above), or you already use Xero then there will be no additional cost, hurrah!
If you currently use spreadsheets, a manual system or a non-compliant software then you will have the cost of the software you choose. For Xero, the subscriptions start at just £15 per month plus VAT. Your bookkeeper will also charge you to complete a conversion from your current system.
If you are currently using Sage or Quickbooks we are able to convert you to Xero for free thanks to MoveMyBooks and their relationship with Xero. More details on this services can be found here: Our Xero Conversion Sercvice
PPF is able to assist with this transfer, and we are also able to help with converting from spreadsheets, manual books and other non compliant software.
For more information on our MTD compliant packages head over to our Get Started page to complete our quick questionnaire and book a discovery call with us.
