Making Tax Digital: Everything you need to know

**This post has been updated to reflect the changes announced by HMRC**

Digital accounting. You’ve more than likely heard of the HMRC’s big push to move all record keeping online. But why is it so important? And do you really need to do it?

The end goal of HMRC’s Making Tax Digital programme is to join up all internal systems to create just one account for every Taxpayer in the country. A one-stop shop for each Taxpayer’s Tax information. As you can see on, “HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world.” That’s no small order. And, in true HMRC fashion, there is a deadline.

Self-employed persons, including landlords, with an annual income of above £10,000 will need to adhere to the HMRC’s rules in the Tax period following the 6th April 2024. There is, however, a pilot scheme currently in place. Begin to prepare your records now, and you’ll have more time to get to grips with the new process. You’ll be a dab hand by the time 2024 rolls around! 

HMRC are looking at a digital trail of data, from input to submission, most likely to be on a quarterly basis. To do this, it’s bringing in the collection of data from all areas of business. And this will impact how you, as a business owner, submit information to HMRC and consequently keep your books and records. Quarterly VAT Returns are already well embedded, but this new regime will also require quarterly Income Tax Returns. It’s believed that HMRC are encouraging you to keep all original records digitally, to enable more information to be sent to them in the future, but this has not yet been confirmed. 

So, what are the benefits to you and your business? 

First of all, there’s the time saved. An invaluable commodity in the world of business, we could all do with more time. Keeping your records online means that you can find whichever document is needed at that moment with very little legwork. You won’t need to spend hours rifling through the many filing cabinets in your office. In fact, I’ve heard the anecdotal story that a very bright spark calculated that it costs on average £17,000 to fill and maintain a filing cabinet. Imagine a whole office full of them! 

The main benefits are as follows:

  • Time saving
    Upload your original documents to a secure platform (we’ll go through those options a bit further on), making your record keeping quicker and far more efficient. Plus, when the time comes to send your information to HMRC, it’s digitised and ready.
  • Easier to keep track
    Find your documents with a click (or three) of a button, instead of rifling through your many filing cabinets!
  • Save time, save money
    Think of how much time you’d save. Now imagine being able to use that time more productively on and in your business to bring in more income, and spending more time with your loved ones.
  • Save on stationery costs.
    How much do you spend on stationery? And the dreaded filing cabinets/storage? Once your records are digitised, you’ll be able to cut back on your spending.
  • Positive environmental impact.
    How much paper, plastic and other materials do you get through each month? Reducing this enables those resources to be saved from production and disposal.

And keeping your original documents safe is crucial. HMRC requires proof to confirm your Tax contribution, and without that proof, they’re forced to estimate. In fact, a Taxpayer was recently handed a bill of £200,000 this year due to a lack of records over the last 16 years! 

How will Making Tax Digital (MTD) affect you?

We touched on deadlines a moment ago, but let’s dive a little bit deeper. MTD will cover most of the areas that Taxpayers must adhere to: VAT, Income Tax, and Corporation Tax. One area that seems to be no longer talked about is PAYE, which is administered through Payroll schemes. Real Time Information (RTI) was introduced a few years ago, though, and digitised the whole process. All PAYE data is currently sent to HMRC at each pay run. 

Here are some key dates for your diary.

Every business with a turnover above £85,000 must be registered for VAT and operate under MTD rules. Businesses under this threshold who have registered can opt in. 

From 1st April 2022:
All VAT registered businesses must follow MTD rules. 

From April 2024:
As we touched on previously, self-employed Taxpayers (including landlords) with a turnover of more than £10,000 per annum will fall under MTD. You’ll see quarterly reporting to HMRC and in time, quarterly payments. We’re expecting to continue with preparing end of year accounts, as this will help with adjustments and claiming Tax allowances. 

Also from April 2024:
Limited companies will be able to register and use MTD under a pilot scheme. It is expected to be fully functioning after April 2026. 

Preparing for MTD

These deadlines seem a long time away, but that time will pass quickly and you should begin preparing now. First of all, if you have any queries at all about how this process will affect you, please get in touch. We’re more than happy to talk you through the specific steps that will work best for your business. You should think about how big your business is, how good your in-house IT skills are, and your budget. (Bear in mind that this will bring a saving, as mentioned above.)

There are also a whole host of apps at your disposal, to store documents securely and for overall accounting software. You’ve probably seen adverts for them as they fight for your  attention online, in apps, and on TV. Those making the most noise are QuickBooks, Xero and Sage for accounting software, with many more becoming increasingly popular (Reckon One, Kashflow and FreeAgent, for example). Your bank may also have their own preferred system. 

For saving original documents as digital copies to enhance your record keeping, the main ones out there are Dext (formerly Receipt Bank), Auto-Entry, and HubDoc. These enable you to store your original documents safely and securely, without the multitude of filing cabinets and time spent searching. 

We’re here to help

As always, we’re here to help you, with our team providing friendly advice and information for you to make the best choices for your business. Investing a little time now will save panic, heartache and confusion when these changes are implemented. Get ahead of the curve and contact us today

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