Published: September 3rd, 2021 in Finance News, Latest News
The digital landscape is continuously working to ease, improve and automate processes in our lives. One of which will affect everyday business for sole traders, partnerships, and landlords is MTD for Income Tax, known as ‘making tax digital’.
HMRC has already rolled out MTD for VAT, turning returns to an online process, reflecting the next steps for Income Tax. From April 2023, filing a tax return will be a digitalised step for those who turnover £10,000+ annually.
Launched to overcome the common mistakes of traditional processes, found to cost £8.5bn yearly, MTD for Income Tax will work to strengthen the process while easing returns and offering clearer awareness of tax liabilities for taxpayers.
Changing accounting rules, digital record keeping will be required, implementing corresponding software to send quarterly summaries of income and expenses, along with an end-of-period statement and declaration. Found to offer greater organisation and clearer insights into tax liabilities, MTD for Income Tax is set to be a positive development.
While MTD for Income Tax will be easily adopted post-pilot, digital processes can cause hiccups, encouraging preparational steps of the digital shift. Here’s greater insight into MTD for Income Tax, along with how we can help with the shift here at The Financial Management Centre.
What Is MTD For Income Tax?
Currently, a yearly self-assessment and declaration are required by the self-employed and those who earn through the property market to input and pay Income Tax. Doable through personal means of recording, this process can be completed both offline and online via HMRC.
However, like any complex and mass process, mistakes are made, costing billions through recent years. MTD for Income Tax has been developed as a concept to minimise such mistakes and automate the process through digitalisation.
Changing how accounting will take place for landlords, partnerships, and sole traders, turning over £10,000+ each year, MTD for Income Tax will require adjusting to, ready to regulate from April 2023.
Currently, a pilot of MTD for Income Tax is taking place, after the recent success of MTD for VAT, again digitalising the recording and payments on accounts.
How Does MTD For Income Tax Affect Businesses?
The accountability of Income Tax is usually present through ongoing recordings of profit and expenses, followed by an annual self-assessment, which must be completed and paid by the end of January. Such a process has become part and parcel of running a business, recognised as HMRC Income Tax.
MTD for Income Tax will affect business owners by adapting such accountability, where recordings will firstly need to take place across a digital platform, corresponding with accounting software. Next up, instead of an annual cover of profits and expenses, quarterly summaries will need to be provided to offer a steady forecast on accounts.
Alongside quarterly updates, an end-of-period statement will need to be completed, similar to the self-assessment process, including a declaration of legitimacy.
From here, an Income Tax Calculator will work to provide a final figure of tax liability, taking into account quarterly summaries.
While currently, MTD for Income Tax may come across as complex due to the convenient nature of existing processes, corresponding software will ease the process, offering ongoing direction and timelines.
Reasonably beneficial for the government, MTD for Income Tax will also benefit taxpayers by providing greater organisation and insight into tax liabilities. Helping to save money through digitalisation, greater insight will be present for those self-employed to save for and be aware of yearly responsibilities.
Preparing For MTD For Income Tax
Self-assessments and tax returns are currently overwhelming actions for many business owners. At The Financial Management Centre, we offer self-assessment tax return services to ease such a dreaded part of business.
Foreseeably, great change will come with MTD for Income Tax, meaning that preparations should now be completed to ease the transition. For some, digitalisation will be second nature to adopt. Yet understandably, this will not be the case for every business owner, especially those who do make use of professional bookkeeping services and VAT support.
Finding a compatible and corresponding software of MTD for Income Tax will be the first step of preparing, where recommendations will soon follow regarding adoption. From here, familiarising yourself with the accountability of quarterly recordings, along with the functionality of new software, will be recommended.
All preparations must be completed before the adjustment, where the first quarter will likely start from the new financial tax year of 2023. Getting ahead by recording and inputting 2021/22 tax returns will be recommended, following the outlines of MTD for Income Tax, to put such preparations into practice.
Our Support Here At The Financial Management Centre
MTD change for Income Tax will likely cause anxieties for many new business owners or those who dread the yearly tax return process. At The Financial Management Centre, We will be here to offer support throughout the whole process, from advice to preparational steps.
We will also continue to offer support through existing Year end accounts and tax returns, Bookkeeping and VAT guidance, and self-assessments for sole traders and limited companies.
For more information on general accounting for business or guidance through the MTD for Income Tax adjustment, reach out.
Highlights of MTD for Income Tax
- Currently under pilot
- Launching in April 2023
- Changing the way that Income Tax will be recorded and calculated
- Turning all processes over to digital platforms
- Getting rid of the standard HMRC self-assessment process
- Bringing in quarterly summaries of profit and expenses, end-of-period statements, and declarations
- Aimed at sole traders, partnerships, and landlords who turnover more than £10,000 a year
- Offering greater organisation and insight into tax liabilities
- Preparational recommendations of finding suitable software and using it prior to the launch
All rules, along with software recommendations, will soon circulate to bring us all up to speed with MTD developments for Income Tax. For more information, reach out, or to sign up now, click here.
Sources:
https://www.moneydonut.co.uk/blog/21/03/why-you-should-prepare-for-mtd-for-income-tax-2021
https://www.gov.uk/guidance/sign-up-your-business-for-making-tax-digital-for-income-tax
