5 things you need to know about Making Tax Digital
If you’ve heard about Making Tax Digital, but don’t really know what it is, you’re definitely not on your own. The phrase has been buzzing around sole traders and small businesses for ages, with the promise of making it loads easier to submit your tax return by 2020.
Stay in the MTD loop! Here are 5 things you really need to know.
1. It’s a new, easier way of doing your taxes
The government’s very big on making tax returns easier, so they’re gradually rolling out Making Tax Digital, which should be available to everyone by 2020.
Instead of logging into HMRC’s online services and submitting your return through their forms (which, let’s face it, are not super easy to use), you’ll be able to use your accounting software instead. Your accounts will already be recorded, making errors a lot less likely.
2. Tax return mistakes cost £9 billion a year
A lot of us get ‘tax season fear’. We’re worried about getting something wrong, getting a surprise bill, and getting through to someone on the phone for help isn’t exactly easy. Add deadlines and fines into the mix and you’ve got a tense few weeks on your hands.
Research from HMRC has shown we’re all keen to get it right, but “avoidable mistakes cost the Exchequer over £9 billion a year”. So the government clearly has a good reason to start making it easier for us - we’ll all hopefully save money and time.
3. You need “functional compatible software”
The accounting software you use needs to be able to communicate with HMRC. If your accounting software is installed on your computer, you’ll need to keep it regularly updated or switch to cloud accounting software that updates automatically.
HMRC have a complete list of compatible software. Check it now to see if yours is on it.
4. VAT-registered businesses are the first to get involved
From 1 April 2019, you’ll need to submit your VAT return directly from your accounts software if your taxable turnover is above the VAT threshold. You don’t have to do this yet if you’ve been deferred to October 2019. If you’re not sure if this applies to you, check your paperwork.
Your VAT return checklist:
✔️ Make sure you’ve got compatible software.
✔️ Sign up for the pilot VAT scheme through Government Gateway.
✔️ Keep all your income and expenses data up to date.
✔️ Submit your VAT return yourself, or through your accountant.
5. If you’re keen, you can start using their pilot scheme
You might think that sole traders and the self-employed are going to be the last to get a look in. Not true!
To help with the roll-out, you can volunteer to start submitting your income tax info digitally through the pilot scheme. You’ll keep a record of your income as normal, then submit the info to HMRC every quarter.
If you’re not thrilled by the idea of having to do tax stuff every 3 months instead of every year, it’s not as bad as you think. By submitting your accurate income and expenses gradually, you’ll only have to give it a quick check once a year - that’s much quicker than entering all your details in one go. Plus, your estimates will be updated every time you submit information.
Cloud software and digital tools make managing your business finances much, much easier. It might end with Making Tax Digital, but it starts with something as simple as invoicing and getting paid on time.
Solna can help you create professional invoices in a flash and send automatic reminders that get you paid faster.
Do more of what you love and less of what you don’t. Get started now.