In recent years, the government started phasing in its landmark Making Tax Digital (MTD) initiative. It also outlined a vision to modernise the UK’s tax system, with digital tax accounts replacing tax returns for ten million individuals and five million small businesses.
As part of the regime, taxpayers must move to a fully digital tax system, with businesses and individuals required to register, file, pay and update their information using a secure online tax account.
Making Tax Digital for VAT
Under the MTD for VAT rules, all VAT registered businesses must keep digital records for VAT purposes and provide their VAT return information to HMRC using MTD functional compatible software.
Only a small handful of businesses are exempt from complying with MTD for VAT. Please contact us if you believe your business may be exempt. Businesses are able to make an appeal against a HMRC refusal of exemption.
Barretts can assist businesses in making full use of the MTD system and can provide advice and support in regard to the quarterly updates required by HMRC. Please contact us for more information.
Making Tax Digital for Income Tax Self Assessment
The next phase in the government’s MTD plan is the implementation of MTD for ITSA. Initially, this was due to come into force in 2023. However, to give individuals more time to prepare for the new rules, the implementation date has now been moved to April 2026.
From this date, self-employed people and property landlords who earn a gross income of £50,000 or more will have to make significant changes to how they file their Self Assessment tax returns. These changes include:
- Keep digital (not paper) records of all their income and expenditure.
- Use only HMRC approved MTD compatible software to digitally file their tax returns direct into HMRC’s MTD for ITSA portal.
- Make quarterly tax return submissions (not annual).
- Report annual allowances and accounting adjustments to HMRC.
- Complete and submit an End of Period Statement to HMRC.
- Submit a Final Declaration to HMRC before paying any tax due before 31 January.
Furthermore, individuals with more than one source of income, such as an agricultural contractor who also owns a private rental property, will be required to submit all the above returns and documentation for each income stream.
From April 2027, the same rules will apply to people who earn between £30,000 - £50,000. HMRC is reviewing the situation regarding partnerships and those who earn less than £30,000 a year.
Currently, exemptions will likely apply to trusts, executors, non-resident companies and foreign businesses of non-UK-based individuals.
The MTD for ITSA changes will be significant for some individuals. At Barretts, we will work closely with you to explain the changes and steps you need to take to comply. We can also recommend what software would be most suitable for you, depending on your circumstances. However, we strongly urge you to transition to MTD for ITSA sooner rather than later to avoid a last-minute rush and the risk of incurring penalties for not complying.
Please get in touch with us for more information and how we can support you during this transition.
Possible changes to the accounting year-end
In addition to the changes being brought in with MTD for ITSA, from April 2024, it will be mandatory for all self-employed and unincorporated businesses to have an accounting year-end date that mirrors the tax year end, i.e., 31 March or 5 April. This is to make the calculation of tax simpler. Where changes to the accounting year-end are required, businesses should make this change during the current 2023/23 tax year.
Cloud accounting
Cloud accounting services are the simple way of enabling software to be stored and accessed online. This way of accounting serves similar functions as accounting software that would be stored on your computer but is hosted on remote servers.
There are many benefits of making use of cloud accounting. Its ease of access is one of the primary advantages associated with cloud-based accounting: with these services, you and your employees will be able to access essential data anywhere at any time.
Your data is securely stored and backed-up in the cloud: you will not be filling up valuable storage space on your hard drive. Cloud accounting services utilise real time information, meaning that your data will always be up-to-date and current.
It is clear to see that cloud accounting is the way forward: its ease of use, accessibility and cost effectiveness ensures that it remains a popular choice for many businesses.
Contact us to find out more about our cloud accounting service.