Changes are afoot in the world of income tax for business owners, however for once…it actually has some positive repercussions for your business. Firstly…here are the details:
Making Tax Digital (or MTD) is an initiative from HMRC which, as part of a phased plan, is designed to ensure businesses are keeping their books and records digitally. The motive behind this, is to ensure more accurate information is provided to HMRC more frequently, to avoid the exchequer being out of pocket (current errors cause a whopping £8.5 billion each year).
MTD for VAT has been in existence for a few years now and the next phase is self-employed individuals, and landlords from 6 April 2024. Limited companies are also on the horizon, with plans to launch in April 2026 (however this is still under consultation at present).
What does this mean – all Businesses, self-employed individuals, and landlords will be required to operate MTD (keep digital accounts records) from 6 April 2024 in relation to their trading and property income if their gross income from these income sources for a tax year is greater than £10,000.
This will replace the current requirement to file self-assessment tax returns (woo-hoo!). However digital records must be kept up to date and the following process conducted:
- Quarterly submissions made to HMRC one month and 7 days of your period end.
- An end of period statement (EOPS) submitted to finalise business income and expenditure for the year. This will include any accounting/tax adjustments (from your accountant).
- A final client declaration is submitted at the end of the accounting period and tax due is paid by 31 January the following year.
- This final declaration allows your accountant to include any other non-trade income that would usually be included on a self-assessment tax return (interest from savings, dividend income, capital gains tax etc) and calculates the overall tax liability for the year.
- Payments dates are the same as they are now, with payments on account made every July also.
- There are of course, penalties for missing filing deadlines, with a new point system approach. The points vary depending on the type of submission.
For example, if your year end is 5 April 24, then your submission dates would be:
- First quarter (6 Apr 24 to 5 Jul 24) is due 5 August 2024
- Second quarter (6 Jul 24 to 5 Oct 24) is due 5 November 2024
- Third quarter (6 Oct 24 to 5 Jan 25) is due 5 February 2025
- Fourth quarter (6 Jan 25 to 5 Apr 25) is due 5 May 2025
- 31 January 2026: End of Period statement (EPOS) and final declaration due
You are probably wondering where the positive repercussions are that I mentioned at the beginning of this blog…well, if you are a client of Hive…the chances are you are all but there in terms of being compliant.
We recommend all clients upon joining us switch to Xero (a HMRC approved MTD software), we assist in transitioning your historical data from your old software to Xero and provide training to our clients and their team…making the transition easy and seamless.
We set up bank feeds, to ensure that your information is up to date. We set up bank rules, to automate postings where possible, making your bookkeeping process more accurate and efficient.
We monitor your Xero and review your bookkeeping data regularly, every 3 months, ensuring bank feeds are still active and all information posted into Xero is categorised correctly.
We do this as part of our service, not for HMRC’s benefit, that just happens to be a fortunate coincidence. We do it for all our clients. They too, like us at Hive, are business owners, and as business owners it’s imperative to have this information accurate and up to date to be able to run your business effectively. This allows the business owners to be able to budget effectively, to be able to plan, to be able to understand the financial impact of a change in strategy within minutes / hours, not days and weeks. To assess whether our clients are being as efficient as they could be in terms of tax. Having readily available financial information also helps our clients in terms of buying / selling practices, valuing their practices and obtaining additional finance such as loans and mortgages.
If you are already a client, we are in great shape compared to most and ready for this change. If you would like to hear more about becoming a client, please contact us.