*** Important – the rules apply to total gross income – so if you have a small business earning £8,000 a year and a property earning £5,000 a year in rental income, you’ll still be subject to MTD because your total income exceeds £10,000 ***
MTD applies to taxpayers with business and/or property income over £10,000 BUT this has been put back to April 2024 due to the recent pandemic so there is still plenty of time to get set up. We are encouraging you to look into this sooner rather than later, so why not think about 6th April 2023 as a good starting point?
Making Tax Digital for Income Tax is all part of the government’s plans to make it easier for taxpayers to get their tax right. Some of you may know that MTD for VAT came into force in April 2019 for all VAT registered businesses who were over the threshold for VAT. April 2022 then saw those who voluntarily registered for VAT (those under the VAT threshold) also required to file their returns using the MTD rules and approved software. Due to the success of the initial introduction in 2019, this has encouraged MTD for Income Tax.
WHAT?
Under MTD, businesses must keep digital records and use third-party software to submit their tax returns to HMRC. Businesses will need to keep records of their income and expenditure digitally and send a quarterly summary of income and expenses, and an end of year report, using MTD compatible software. You can find a list of approved software by clicking on the link below or on the government website by searching ‘approved MTD software for ITSA’
https://www.gov.uk/guidance/find-software-thats-compatible-with-making-tax-digital-for-income-tax
Please don’t worry as this does not change the tax liability or payment obligations (it is thought that the deadline for payments will remain at 31st January, it merely keeps the records up to date and reduces the scope for error. How many times have you gone to prepare your self-assessment or had a query from your accountant relating to a transaction that is a year old (or more) and have to try and remember what it was for or find some form of paperwork as evidence? This will shorten the time frame between submissions and keep you up to date on a regular basis.
SOFTWARE
As already mentioned, there are many software choices out there.
We are huge Xero advocates and since MTD for VAT came into force we have migrated many businesses over to Xero, have assisted them in keeping their records up to date and filed their returns easily through the software.
Benefits of using software:
- Time saving – with a variety of functions, the time spent on your bookkeeping can be significantly reduced.
- Using bank feeds saves you having to manually enter each transaction. Your bank statement will be automatically pulled in from your banking app to the software
- Automation rules – regular payments can be set up with a rule to automatically match payments
- Image attachments – no more keeping paper copies. Attach images of your invoices and receipts to your payments
- Send invoices on the go
- Clear view of outstanding transactions
- Free payment systems available – get paid faster!
- File Self-Assessments at the click of a button – the software automatically calculates the tax you owe.
Change can be scary, it can be daunting, but it can also be a great thing!
Price of Xero Go Xero Go is a free simple app with paid add-ons to choose from. Add customised invoices (free for 30 days from your first invoice then £4.99/month) and connected payment services (fees apply to some) to get paid faster.
WATCH THIS SPACE…
We will be offering a group training session at a lower cost for anyone who would like to learn how to use Xero Go. This will be online and more details will be announced in the coming months.
Please do not panic!
If you would like more information about Xero Accounting Software and how it works, get in touch using the contact form button at the bottom of the page. We also provide Xero software training so please don’t feel that with the introduction of MTD comes the need to use a bookkeeper. If you are already doing your own bookkeeping, you can carry on! Information about our training can be found on the Courses page of our website and is on a time spent basis from 2 hours up to 6 hours, so we can cover different and relevant aspects of the bookkeeping within this time.
