Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is set to change the way millions of self-employed business owners and landlords report their earnings to HMRC from 6 April 2024. Any sole trader or a landlord with a total business and/or property income above £10,000 per annum will have to comply with the new MTD rules.
In our previous blog post, we discussed what MTD for ITSA is, how it will affect the self-employed and landlords, and the steps needed to prepare for it.
Since digitalisation forms the core of MTD for ITSA, it is imperative for those mandatorily enrolling on the program to record all their business incomes and expenses using HMRC-approved MTD-compatible accounting software. However, that is not the end of it.
You must also take extraordinary measures to prepare your administrative processes to avoid penalties. Let us dive into what you should avoid and what you should do when getting ready for MTD for Income Tax Self Assessment:
1. Stay away from spreadsheets
Many micro-businesses and small-level landlords do their bookkeeping on Microsoft Excel or some other spreadsheet software. This works if the business is small and is required to undertake only low-level accounting tasks.
Investing in software can be time-consuming and expensive in such a case. However, detailed guidelines around data copying and pasting fall under the digital linking rules.
Spreadsheets can be used for MTD, but care has to be taken. You need to use bridging software, such as 123 Sheets or AccountsIQ, to enable the data to be submitted. Typically, the 9-box figures are linked up to other areas of the spreadsheet, so they comply with the rules.
You then inform your bridging software which cells your data is in. The software sends the information to HMRC. Simply copy/pasting values from a spreadsheet onto the software to complete a quarterly report, final declaration, or EPOS is possible.
However, the link between the software and spreadsheet has to be digital and automated – as per the rules for digital linking. Plus, spreadsheets have poor data security measures, and a small mistyping can erase a critical formula.
2. Remove or reduce your paperwork hassles
The whole point of MTD for ITSA is to remove the reliance on paperwork for accounting. Those using a book-based ledger or something similar must switch to accounting software or work with a bookkeeper or accountant who can do this for them. However, physical paperwork is almost impossible to avoid if running a business.
You may receive printed invoices or have clients that want you to send printed invoices. In either case, you should digitise the invoices as soon as possible so you are not sifting through piles of paperwork when the time comes.
With an accounting software solution, you can automate invoice payment reminders and handle admin on the fly – for instance, sending an invoice to a client from the mobile app. You cannot be that quick and efficient with your paperwork.
3. Do not try to do it all by yourself
We are all new to the concept of MTD for ITSA. No one expects you to know everything about it. So if you have to take help to navigate through the transition, please do. It will only make your introduction to MTD for ITSA less overwhelming.
Many competent cloud accountants in the market, like Golding Accountancy, are happy to help and advise you and can undertake the quarterly updates, multiple End Of Period Statements (EOPS), and the final declaration on your behalf, in addition to giving initial guidance on signing up for MTD ITSA, adjusting admin processes and even helping with software choices.
4. Use a dedicated cloud accounting software
Deploying a dedicated software solution will help you comply with MTD for Income Tax Self Assessment faster. While MTD requires the self-employed and landlords to adapt to new technologies and methods, a robust accounting solution can make the transition smooth.
If you give HMRC accurate data in your periodic reports, you will always know where you stand regarding your tax position. You can share this with your accountant, so they will always have this insight.
Getting into good habits for MTD will bring other benefits. The regular nature of reporting will mean you are reconciling your bank statements more frequently, getting on top of outstanding debtors, gaining clarity on the tax to be paid and generally having an improved overview of your financial performance.
With the relevant information at your fingertips, you will be able to spot any cash flow problems or opportunities and be in a far better position to make business decisions.
Over to you
MTD for ITSA truly enables complete visibility into your business at all times. To stay compliant, you must fully understand the implications of the new rules and, more importantly, learn what will need to change for you to fulfil your legal obligations.
While it seems far away, the April 2024 deadline will come around quickly. Therefore, speak to an MTD specialist to receive advice on how you need to move forward with MTD for ITSA. You can always count on Golding Accountancy for timely support. Contact us today!
Frequently Asked Questions (FAQs)
1. When will MTD for ITSA be compulsory?
MTD for ITSA will become mandatory from 6 April 2024. Any sole trader or a landlord with a total business and/or property income above £10,000 per annum will have to comply with the new MTD rules.
2. Is there a delay in Making Tax Digital Phase 2?
Phase 2 is used in reference to the MTD for Income Tax Self Assessment go-live date, which is 6 April 2024. Initially scheduled to roll out in April 2023, the UK government extended the deadline by one year due to the COVID-19 pandemic.