As we continue down the Making Tax Digital (MTD) roadmap, one particular question often crops up: will tax returns be a thing of the past?
Well, that’s a big part of MTD, with the Government’s vision of modernising the UK’s tax system.
“Tax returns will be replaced by digital tax accounts for millions of individuals and businesses,” David Gauke, former financial secretary to the Treasury once said.
“They will bring together each taxpayer’s details in one place, just like an online bank account, so they can register for new services, and understand quickly and easily what they need to pay – without ever having to complete a tax return again,” he added.
But what exactly does that mean? What will doing your taxes look like after MTD and what’s the easiest way to comply?
MTD has been in the works for a number of years now and we’re only part way through its rollout.
First, the Government announced that VAT-registered businesses with a taxable turnover above the VAT threshold (£85,000) would start using MTD-compatible software to record their VAT data from April 2019.
From April 2022, all VAT-registered businesses begin keeping digital VAT records regardless of their turnover, after which point MTD for income tax is next on the roadmap.
This will kick in from April 2024, at which time, self-employed businesses and landlords with a total gross income above £10,000 will have to keep digital records and file updates with compatible software.
MTD for income tax is already running as a voluntary pilot scheme. Joining this could be a good way to get used to the new rules – especially if you’ll have to comply with them soon anyway.
Unincorporated business partnerships that have business or property income over the threshold, and only have individuals as partners, will have to abide by MTD for income tax rules from April 2025.
What does MTD for income tax mean for me?
Businesses and landlords who join the scheme will need to submit a summary of their business income and expenses to HMRC using MTD-compatible software every quarter – on or before 5 August, 5 November, 5 February and 5 May each year, to be exact.
Once you’ve made your quarterly submissions, you’ll receive an estimated tax calculation based on the information you’ve provided.
This will hopefully make the income tax system simpler for you to understand and your tax bill easier to budget for.
At the end of the year, you’ll also need to send a final report to confirm your total income and expenses, and claim any reliefs and allowances available. This final confirmation will effectively replace the self-assessment return.
Which MTD-compatible software should I use?
While MTD for income tax shouldn’t require you to provide any more information than you currently do through your self-assessment return, you will need suitable software to meet your new tax obligations.
There are plenty of options out there to choose from nowadays that all offer to save time, reduce cost and eliminate needless paperwork. The trouble is picking the right one.
At Almar BSL, we’re proficient with a range of online accounting software packages, including Xero, Quickbooks, Sage and Receipt Bank.
Each one is useful in its own way to get your business accounting done, but some might be better suited to you than others.
For instance, while Xero is reasonably priced, premium and additional costs can easily rack up. And Quickbooks, as wide ranging as it is, can be bewildering to someone not used to cloud accounting.
That’s why we’re always on hand to chat about the best solution for you.
We can also provide advice and tutorials so that when you have to use your new software for MTD, you’ll already be an expert.
Talk to us about cloud accounting.