Making Tax Digital
HMRC’s plan is to move all business owners over to complete their tax returns and keep their records digitally. The ultimate aim is for everything to be paperless.
The rationale behind this is that it makes it easier for individuals and businesses to get their tax right and stay on top of their tax affairs.
Making Tax Digital for VAT was introduced in 2019 and required businesses with a turnover of over £85,000 to keep digital records and submit their returns using accounting software. This was extended to include all VAT registered businesses from April 2022.
From April 2024 all self-employed businesses and landlords with an annual income over £10,000 will need to follow the rules for Making Tax Digital
What does this mean for you as a Sole Trader (Self-employed) or Small Business (not Limited)?
From April 2024 HMRC will be launching Making Tax Digital for Income Tax. HMRC say that it is a more ‘real time’ system and will help you to see how much income tax you owe as you go rather than it being a nasty surprise each January!
The system requires you to submit digital quarterly updates to HMRC and then at the end of the financial year you’ll send a final report and your tax for the year will be calculated after accounting for any allowances and relief.
You can sign up now voluntarily by following this link. This might help you get used to the new system before it becomes compulsory.
You can find a full step by step guide to Making Tax Digital for Income Tax here
Making Tax Digital Software
All businesses will need to use accounting software to send their returns and whilst your digital records don’t all need to be on one piece of software the product you use will need to be compatible with HMRC systems. You can find a full list of compatible software here.
Businesses that don’t already use accounting software are likely to face some initial and ongoing costs as they train staff and put new processes in place.
Kate Durrant is a Wild member and the owner of Mariposa Services: your go-to Virtual Finance Department