Digitizing Taxes: Why MTD for Income Tax Will Make Life Easier for Your Business

Making Tax Digital (MTD) for Income Tax is a new tax system, which will be launched in two phases in April 2026 and April 2027, although it is possible to sign up for it. pilot scheme immediately.

This affects sole traders and/or landlords whose income exceeds £50,000 in the first stage, and £30,000 in the second stage.

The new rules mean you’ll need to manage your taxes using software for your accounting.

During each year, you will need to provide four quarterly reports, as well as a period end statement and then a final declaration by January 31.

This may sound like a lot of extra work but this is where software comes into play.

Most of the work required to complete the various steps will be automated, and the data should be ready and waiting when the time comes.

MTD for Income Tax offers you a once in a lifetime opportunity to overhaul your accounting administration functions by choosing the best. cloud accounting softwareAnd really making the most of it.

This can mean less admin, and therefore more time to invest in doing the things you love – such as developing your products and services, adding value to your clients and customers, and helping your business grow. Set a target.

In this article, we introduce a range of ways MTD for income tax can make life easier in your business.

Here’s what we cover:

Always Know Your Financial Status

Know how much you owe

Fewer mistakes and late submissions

hooking up with your accountant

Bringing New Technology to Your Business

threshold of a new world

Tax Digitization Guide for Income Tax

Need help getting your business ready to go tax digital? Download this free guide to know about MTD for Income Tax and get ready now for the changes starting April 2024.

Download Your Free Guide

Tax Digitization How beneficial can income tax be for your business?

Yes, you need to pay more attention to your calculations than you might be used to.

But it does mean that you are more likely to know your financial status at any point in time. You will get an idea of ​​cash inflow, cash flow and how much money you have to work with.

Compare that to how some businesses are run, where the owner may only get this kind of information once a year, when they visit their accountant at tax time.

You can access this type of information at any time of the day if you use mobile accounting apps.

You can always stay connected to your business finances, reducing the number of times you have to sit at a desk to figure out things like this.

And, of course, the whole point of an MTD for income tax is that you’re able to top up your tax liability throughout the year.

In short, it means that you have the best idea of ​​how much you are likely to owe.

This benefits cash flow.

You may be accustomed to setting aside a quarter or a third of your income for tax purposes. This is often more than enough to cover January’s tax bill, but the idea is that saving too much is better than saving too little.

But now you can determine how much you are likely to actually owe based on the figures shown in your quarterly reports.

Of course this amount will still be an estimate, and it remains a good idea to be liberal in your estimate due to the potential need for adjustments and relief in January.

But you can certainly avoid saving too much each year.

As with any software, what you see in your accounting software for quarterly reports will only be as accurate as what you input. But if you get the simple steps of MTD for income taxes right, such as quarterly reports, the rest of your accounting should follow suit.

Making mistakes in your accounting can not only lead you to miscalculate your cash flow position. This can attract a fine from HMRC.

Similarly, late submissions may also attract penalty.

With MTD for VAT and MTD for Income Tax, a new points based penalty system Introduced by HMRC, this would mean an automatic £200 fine if a certain number of points are exceeded in the time limit.

This VAT came into effect on January 1, 2023 for customers, and will come into effect as soon as taxpayers become mandatory for income tax in 2026 or 2027, depending on their income.

But fines and points are just one of your worries.

Accounting mistakes also eat up your time when they should be corrected. And you don’t want any more admin work on top of what you’re already doing.

The MTD for Income Tax is required to send quarterly updates to HMRC making it harder to make mistakes and easier to spot any you have made. Essentially, you are checking your accounting data every three months.

Perhaps surprisingly, there is no legal requirement for quarterly reports to be accurate. But it’s obviously a good idea to be as precise as you can be.

And while your accounting software can only be as accurate as what you input, MTD-compatible accounting software will automate most of the work needed to generate quarterly reports. In many cases, it will simply be a matter of checking the report and then choosing to submit it.

A good quality MTD for income tax software will be cloud-enabled and offer the option of connecting to your accountant’s system.

This means the accountant can see the same financial data you see, therefore helping with MTD’s periodic reporting requirements.

And depending on your needs, this insight means they can evolve into another business partner. After all, they have the knowledge to examine financial data and a vast amount of experience in all types of businesses thanks to their work with other clients. They are able to detect any problems that may arise long before they actually become a problem. Likewise, they are able to spot opportunities.

If nothing else, linking your accounting system to theirs makes it a lot easier each January when you need to make the final declaration(s) for your business(es) or property income, and file your taxes. Let’s pay For example, there’s less need to go to their office with a big box full of paperwork.

Selecting a good quality MTD for income tax-compatible software is an opportunity to make the most of technology for the benefit of your business.

It would certainly be a mistake to assume that all accounting software solutions are essentially the same. In fact, being able to handle your accounting is the very basic level for the best accounting software.

Major developments in recent years include artificial intelligence in the form of machine learning. This can make bank reconciliation much faster, for example by automatically matching incoming payments against invoices. Similarly, taking a snapshot of a receipt using your phone can mean that data is captured and automatically inserted into your accounting.

This means you save time that can be used for other tasks and opportunities – freeing up your staff, or getting back your weekends. Whether it means more time to spend with your family, or time to make your customers happy and grow your business, that’s not all.

Adopting the MTD for income tax offers your chance to truly get to grips with your business accounting.

It would be a mistake to assume that this means spending more time on work. The opposite is true, in fact – if you really own your business accounting then the time it takes you to do it should be short.

Plus, you’ll increase the amount of important information you know about your business. This allows you to be more agile in your decision making. This in turn means more opportunities can be tapped, leading to a stronger business and faster growth.

Editor’s note: This article was first published in September 2021 and has been updated for relevance Delay in making tax digital for income tax,

Tax Digitization Guide for Income Tax

Need help getting your business ready to go tax digital? Download this free guide to know about MTD for Income Tax and get ready now for the changes starting April 2024.

Download Your Free Guide

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