The long-term plan of HMRC is to evolve the tax reporting away from paper records and manual returns into a digital form, which is known as MTD or Making Tax Digital. The idea is not the hardest thing to understand for most small business owners, but what gets confusing, however, is knowing which elements of that change affect you and how.
What Making Tax Digital is in plain English
MTD requires certain taxpayers to:
Provide a digital income and expenditure
Send your information to HMRC using software that is compatible with MTD
Provide updates in a more organised fashion (as opposed to just one big scramble at year’s end)
It is meant to minimise errors and provide a uniform manner of reporting for tax purposes.
What’s already in place?
Many businesses are already in the world of MTD with MTD for VAT, and it is a reality. You usually have to keep digital VAT records and send returns using compatible software if you’re registered for VAT.
What happens next? (why it matters)
It is obvious where this is going; gradually, more and more people will be registered for MTD, and the way in which tax reports are made will move over to using software.
This is why it pays to get your bookkeeping in order, even if MTD does not yet apply for all aspects of your tax affairs. The companies that will have the hardest time are those depending on:
A bag of receipts
Out-of-date spreadsheets
Last-minute year-end catch-ups.
You do not need a perfect system – you just need something consistent.
Do you need a database to hold your records? Find somewhere simple, like accounting software, or maybe even just be happy with what system the accountant recommends. Stop info from living in five different places.
Invest 20-30 minutes a week in bookkeeping. Upload receipts, reconcile transactions, and send invoices. Small and regular, beats big and late. For Cheltenham Accountants, contact https://www.randall-payne.co.uk/services/accountancy/cheltenham-accountants/
Draw a line between business and personal spending. If you have not already, open a separate bank account for your business.
Monitor what you owe: Budget for tax in real-time to prevent deadlines from turning into a cash flow crunch.
Talk to your accountant early. Find out what MTD obligations you’ll have, which software is supported by them, and ask what they need from you on a monthly/quarterly basis.
