Making Tax Digital

What is it?

What Is Making Tax Digital For Income Tax?

Digitising your tax will soon be a mandatory part of your tax recordings and proceedings. There are various deadlines over the next couple of years that you will need to be aware of, but we want to make this transition as easy as possible for you. So here we will provide you with some key information to put you at ease.

VAT- The first deadline is April 2022 for all VAT registered companies. The government have made it mandatory for all businesses including those with a taxable turnover of less than £85000 to submit their VAT tax returns and keep their records digitally. However, in the coming years, businesses will be expected to undergo the process of becoming completely digital in their tax operations. This will be a fundamental shift, but in the long term will give capacity for effortless accounting and fewer discrepancies in your recordings.

What Does This Mean For Income Tax?

If you are a self-employed professional with a total income of over £10,000 per year, from the 6^th April 2024 you will be required to digitise your income tax proceedings.

What will I need to provide?

Quarterly updates- Every quarter you will need to submit an update of your income and expenditure. These updates will need to be submitted to HMRC within a month of the end of each period.

End of period statement- This will be an overall account of your annual income and expenditure. At this stage you can make any necessary amendments to your accounting.

You can also claim tax relief at this point in the process. Your tax relief claim will need to be compiled within your End of Period Statement for you to be granted any reductions or credits. If you haven’t yet considered applying for this, it would be worth contacting our partner company Counting King, who can assist you with Tax Credit claims on any R&D project you may have undertaken.

Final Declaration- Lastly, in this document you will declare any personal, taxable income such as savings or investment.

Signing up- You will need to sign up through HMRC in order to begin recording your tax digitally. During this process, you will be asked to require the following:

Your name
The start date for your business
Your email address
Your National Insurance number
Your accounting period
Your accounting type

Using Government Gateway, you will receive a User ID and password to authorise the software you are using. In choosing your Making Tax Digital (MTD) software, you will need to ensure you are using a software system that is HMRC compliant.

Choosing The Right MTD Software For You

There are many software systems out there that are compatible with HMRC, so choosing the best one for you may seem daunting. We want to make the decision easier for you. Below are two leading providers of MTD software and some details of what they provide, so that you can compare and contrast, and make an informed decision.

Xero:

Arguably the most user-friendly software, so if you have not yet embarked upon any digital tax operations, this might be the most appropriate software for you.
Over 800 applications available in their marketplace, allowing you to automate your everyday tasks. Perhaps their most highly regarded function.
Unlimited users allowed. There are no charges on the amount of users you invite to your organisation, ensuring open correspondence with office administrators, data entry staff, and accountants.
Tax digital function is completely free

Sage:

Free Bank feeds- This ensures a free digital link between your bank account and the software
Audit trails- Trace all of your available accounting records
Accountants receive advanced access
Built-in GDPR compliance
Unlimited transactions and chart of accounts
Perfect for mid to large companies who are familiar with/established a strong understanding of digital tax

Apprehensive?

The government are closely monitoring the digitisation of tax operations. Presently they are developing retrospective documents on how users are engaging with and experiencing the Making Tax Digital incentive.

A key finding so far is that:

Fully compatible software users typically experienced ongoing benefits which outweighed the costs of Making Tax Digital for VAT. Amongst these were participants who reported realising more benefits over time as their familiarity with the software increased.

Naturally, there have been records of users that haven’t seen as many benefits to the digital system, but this cohort ‘tended to be at the later stages of the business lifecycle, at which point their business focus was on maintaining the status quo.’ This gives us the indication that the digital tax system is working efficiently for businesses and professionals who are focussing on growth, which holds testament to the government’s initial core incentive for Making Tax Digital- innovation.

Do You Need A Hand?

Working together will help the transition to digital smoother. Contact us today so we can advise you in more detail as to which steps you need to take and when. We can also work towards a solution that will optimise your relationship with HDH accountants, so that our collaboration in the digital sphere is efficient and hassle free.

Email us at info@hdhaccounants.co.uk, or call us at 0161 714 4720