You may have seen in the news that the government are bringing in a new method of record keeping called Making Tax Digital (MTD).
Why is HMRC doing this?
This is a government initiative announced in the March Budget 2015. HMRC believe it will provide the following benefits:
The end of the annual tax return for millions.
Creation of a personalised ‘real-time’ digital tax account.
Tax ‘right first time’ avoid errors and compliance checks.
HMRC will use information it already has, or is able to get from elsewhere such as employers, banks or other government departments.
By 2020 most taxpayers will have ‘real-time’ visibility of their liabilities and entitlements in one place, accessed just like online banking.
What you need to consider?
By 2020 all companies and sole traders, partnerships and landlords with an income over £10,000 will be required to maintain accounting records on a proprietary software package that can report accounting and VAT data quarterly.
The move to ‘Making Tax Digital’ does require you to use record keeping software.
There are several accounting software packages that make it easy to manage your accounts, and once you convert you could be left wondering why you did not move to digital record keeping years ago. Using accounting software can be easier and quicker than maintaining records in a book or on excel, and allows much greater visibility of cash flows and profit levels.
HMRC have a list of suggested software on their website, at a range of fees. You may have friends or colleagues that recommend certain accounting packages, but please check that they will be MTD compliant. This is especially important if they are free.
Personally, I recommend the following software;
All the above software packages allow you to create invoices which can be either printed or e-mailed directly to your clients. They have the capability to import bank, credit card and PayPal statements directly reducing the amount of administration. The software is all cloud based, allowing you to access it anywhere, and you can also offer your accountant access. Some also provide mobile apps, allowing cash receipts to be photographed for direct inclusion in your accounts, thereby reducing the year end panic of locating lost receipts.
It is worth spending time researching and trying out the different software as you need to find the one that works for you. The idea is to automate your accounting records as much as possible so you do as little as possible.
HMRC have said they will allow accounting records to be kept on spreadsheets, but these must go through some form of MTD conversion software. From the information currently available, I would only advise keeping accounting records in this form if your accounts are very simple, for example a property rental.
I suggest that you move to digital record keeping as early as possible to give plenty of time to refine your business processes. The eventual move to quarterly reporting should then be stress-free.
From April 2018
all self-employed and landlords with income over the VAT level will be required to keep digital records and report accounting and VAT data quarterly, and produce a tax return as usual by the following 31st of January.
From April 2019
all self-employed and landlords with income over £10,000 will be required to keep digital records and report accounting data quarterly, and produce a tax return as usual by the following 31st of January. All VAT returns must be submitted digitally.
From April 2020
all companies will be required to keep digital records and report accounting data quarterly.