Making tax digital (MTD) is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their accounts. HMRC has the ambition of becoming one of the most digitally advanced tax administrations in the world.
Making tax digital is making changes to the way the tax system works. It will transform tax administration so that it’s more effective and efficient. It does mean that under Making Tax Digital (MTD) you can no longer upload your tax return online through the HMRC Gateway or by post. Instead, you need to keep digital records of your finances in MTD compliant software that connects directly with HMRC.
Making tax digital for VAT
VAT registered businesses with a taxable turnover above the VAT threshold (£85,000) are already required to follow the MTD rule. This will be by keeping digital records and using software, such as Quickbooks, to submit their VAT Returns. If you are below the VAT threshold you can voluntarily join the MTD, should you wish to. VAT registered businesses with a taxable turnover below £85,000 will be required to follow Making Tax Digital rules for their first return, starting on or after April 2022.
Making Tax Digital for Income Tax
Self employed businesses and landlords with annual business or property income above £10,000 will need to follow the rules for MTD for Income Tax. This will be from their next accounting period starting on or after 6 April 2023 (this is subject to change).
Making Tax Digital for Corporation Tax
The government will provide businesses with an opportunity to take part in a pilot for MTD for Corporation Tax. This will not mandate its usage before 2026. With Making Tax digital in the near future, it’s advisable to start keeping electronic records of your business transactions. You can do this through accounts software like Quickbooks.
Making Tax Digital – Quickbooks
While it may seem like a big challenge to change to a digital system, it will actually make your life easier in the long run. A digital system will mean you’ll know in advance how much tax you’re going to have to pay because it’s all updated in ‘real-time’. Making Tax Digital software such as Quickbooks will simplify the whole process. It will prompt you to add any missing or required data. It will automatically compile it in such a way that you or your accountant can easily submit it to HMRC’s digital tax system.
Accounting software, like Quickbooks, will provide you with many additional benefits. Quickbooks lets you see all your incomings and outgoings in one place, making it so easy to see how your business is doing. You are able to make more accurate projections and track your cash flow in an instance.
You won’t waste hours of time every month reconciling your accounts. With Quickbooks integrate your bank accounts and update the accounts regularly. Simple invoicing tools on Quickbooks let you create and send digital invoices, even on the go. You can track outstanding invoices and even send personalised reminders to your clients if you need to.
Quickbooks also has a built-in receipt capture. You just take a photo of your receipts and store them in the software so they never get lost.
How does it work?
When you create an invoice or expense, the VAT you charge is automatically calculated in and added to your tax return in Quickbook’s. There’s no need to manually work out the VAT, you just need to check the return. Quickbooks automatically prepares your return in the format HMRC requires. You then submit the return directly from Quickbooks.
We can get you signed up for Quickbooks in seconds and we also offer Quickbooks training sessions if you need extra help to get going. Quickbooks offer onboarding sessions and have a wealth of videos on the Quickbooks youtube channel.