Making Tax Digital for Sole Traders and Landlords
Officially known as Making Tax Digital for Income Tax Self Assessment to Businesses and Landlord - or MTD ITSA. Easy to remember, right?
Making Tax Digital is a Government initiative to make almost all businesses keep and submit digital records. It’s been introduced in phases, so those who are VAT registered already have to comply with MTD.
The next phase is Sole Traders and Landlords with annual income over £10k. From 6th April 2024 this group will have to be MTD compliant and it’s going to come around faster than you think. So we recommend that you get ready NOW!
This article is intended as a Making Tax Digital primer for sole traders and landlords. We’ll be adding additional and more detailed resources later.
What does Making Tax Digital mean?
There are three key aspects to MTD that you are required to comply with to stay compliant:
1. Maintain Digital Records - you will have to keep and submit digital bookkeeping records using an HMRC approved platform.
2. Submit Quarterly Returns - you will have to submit digital returns every quarter to HMRC based on the following dates:
Qtr 1 - 6th April - 5th July
Qtr 2 - 6th July - 5th October
Qtr 3 - 6th October - 5th January
Qtr 4 - 6th January - 5th April
3. Submit EOP Statements - additionally you will be required to submit an End of Period Statement (EOP) by the 31st January the following year.
How will I do this?
Returns will have to be submitted via approved digital bookkeeping software, so if you are using Xero, Quickbooks or similar then you are already well set up for this.
We do not yet know what the quarterly returns will look like, software providers such as Xero are currently working with HMRC to develop these and we expect information to be published shortly. Which we will of course share on our blog and with our clients.
If you are not yet onboard and using an approved platform, then please take a look at our article about digital bookkeeping software and seriously consider starting to use it now so that you are well used to the platform before it becomes compulsory. There is of course a learning curve with everything new. You do not want to have the stress of learning it whilst on a deadline to submit your digital returns. We provide a basic free group training session to all of our clients who choose to use the Xero platform.
What if I don’t use Digital Bookkeeping Software?
From the deadline of 6th April 2024, there will be penalties for non compliance and late submission of your returns.
Penalties will be calculated on a points basis, when you’ve collected too many points, you will receive a fine.
Points will reset to zero after a period of full compliance. This process is heavily incentivised to encourage compliance from day one.
I’m a landlord, do I have to do this?
And if you jointly let a property with someone else, you will each have to submit MTD returns for your share of the income. Digitalising this now is going to make this much easier for you (both).
Will this cost me more money?
If you engage the services of your accountant to complete and submit the returns on your behalf you will be charged for this additional work, but because it’s digital it is also quite a cost effective submission too. So if your accountant was already doing this for you then it could actually save you money, or at least not significantly increase your costs.
If you do not yet have bookkeeping software, you will need to purchase some. These are usually paid by monthly subscription, ranging from free with certain bank accounts to more expensive products with more functionality.
Here is a link to Xero pricing https://www.xero.com/uk/pricing-plans/
And if you are very low tech and don’t currently own a computer with internet access, you will need to make that investment. Sorry.
However, the additional oversight that comes with this software is going to help you massively in the management and control of your business. Our experience with clients that are already using digital bookkeeping software is that it is an investment that pays dividends and they would not go back. Good to know, huh?
Can I just keep using my spreadsheet?
For some very small businesses with a small number of transactions it may be possible to use bridging software to create a digital link from an Excel spreadsheet to the quarterly returns. We are working on a solution for this but we must stress that for the majority of businesses bookkeeping software will be required and is probably going to be the more cost effective solution in the long run.
Is there any upside?
Yes. Lots actually.
By regularly completing and submitting returns you will be regularly reviewing your business finances. This will better allow you to plan for tax and consider your business profitability
And remember that any additional costs you incur will be tax deductible and so will reduce your tax bill.
Tax payment deadlines will remain the same as they currently are (see payments on account blog) but there will be a facility to make regular payments throughout the year, which can be hugely beneficial in cash flow planning for small businesses.
We’ve mentioned some benefits of going digital throughout this article but why don’t we let a couple of our customers tell you in their own worlds how they feel about making the move to digital bookkeeping in advance of making tax digital?
“I’ve been using Xero for around 3 years now and I love everything about it! I can do several things on the go using the app, as well as more in depth tasks on the website and it also provides detailed reports with insight about my business performance which I’d never had before. I use it for both book keeping and inventory management and the fact that it’s cloud based means the team at Evolve Accounting can log in securely at any time if I need a quick check up on something, rather than having to hand over hard copies or send files by email. It saves me so much time and it’s really easy to use, I’d highly recommend it to others!”
- Alison, Townhouse Bridal
“I find using a bookwork package like freeagent, a massive advantage in giving me time back to focus on my customers. What used to take hours per week is now a max 5 minute task on a daily basis. Now when I talk to my accountant, my conversations are about how I can improve my business and not what records and receipts are missing.”
- Anoop, Excellerated Solutions Limited
Where can I get more information?
Here are some useful links to resources that will help you start to understand the implications of the change and why you need to act now:
Government Cost v Benefits of Making Tax Digital
Our helpful blog post on digital bookkeeping
Additional government information
What should I be doing now?
1. Start Now. Invest in digital bookkeeping software now if you haven't already. There can be a steep learning curve when moving over to software and so we advise that you start to get to grips with this now. We generally use Xero with our clients and provide a basic free group training session, but there are some similar alternatives. You don’t have to take our recommendation.
2. Stay Updated. We are going to be posting regular updates on our blog and in our newsletter - so keep reading! This is a huge change for everyone, including us. Not only will it change the way you manage your business finances, it will change the way we deliver accounting services. So we are very much in this together. We are investing a lot of time attending training courses and keeping up with HMRC updates, we will continue to pass information to you over the next year or so as we lead up to April 2024 and are developing resources to guide you though
3. Talk to us - we don’t have all the answers, this is new to everyone and more information is yet to be released by HMRC and the software companies. But we can support you as you begin to plan towards April 2024
☎️TEL: 01480 775 611