10 May Making Tax Digital for Business – What does it mean if you are self-employed?
Making Tax Digital for Business – What does it mean if you are self-employed?
As a Quickbooks Platinum Partner and Xero Gold Partner we are experienced in advising and using Cloud Accounting packages. Cloud Accounting gives you the opportunity to view all your business transactions in one place and with a wide range of optional add-ons you can raise invoices, check out the bank balance, scan and file receipts all from your smart phone or android device while keeping compliant with the new MTD regulations.
At the moment, businesses keep their accounting records in a variety of ways, from paper records, spreadsheets or accounting software. These records are then used to prepare a tax return for the business at a later date. Under MTD for Business, businesses will be required to:
- maintain their records digitally, through software or apps
- report summary information to HMRC quarterly through their ‘digital tax accounts’ (DTAs)
- make an ‘End of Year’ declaration through their DTAs.
DTAs are like online bank accounts – secure areas where a business can see all of their tax details in one place and interact with HMRC digitally.
EA Assist will be running a series of client cloud accounting events throughout the year to introduce you to whats available and then discuss the best package for you. We will also be running series of on-boarding workshops to get you registered and set up and providing training so you are ready to make your quarterly returns. Contact us now for more information.
Please see our updated blog regarding the new Making Tax Digital Timescale released in July 2017 – read it here.
When does MTD for Business apply to you as a self-employed individual?
Unincorporated businesses with annual turnover:
- above the VAT threshold (which has been set at £85,000 from 1 April 2017) will need to comply with the requirements of MTDfB from the start of accounting periods which begin after 5 April 2018
- at or below the VAT threshold but above £10,000 will need to comply from the start of accounting periods which begin after 5 April 2019.
A business with annual turnover of less than £10,000 is exempt from MTDfB.
The appendix to this letter provides some examples of when the new requirements will apply depending upon the accounting period of the business.
What digital records will you need to keep?
The proposed minimum required information will be:
- invoice date
- invoice value
- income or expense category
- deducted amount / percentage for expenses.
Retailers with high volumes of low value cash sales transactions will be able to just record the trading date, gross cash takings and income category.
There are a variety of software package available to keep you MTD compliant including Xero and Quickbooks, and software such as Receipt Bank will scan paper invoices and receipts direct into the software, using a smartphone camera. After an initial phase of manually assigning transactions to income or expense categories, the software will start to recognise regular items and automatically assign them automatically.
HMRC visualised that a digital record would include not only a record of each item of income and expense but also evidence of each transaction such as copies of invoices and receipts. In the revised proposals the requirement to keep digital records will not include an obligation to store images of invoices and receipts digitally.
Businesses will need to use software appropriate to their business requirements. For example, a business that is registered for VAT will need the software to cope with the VAT scheme it uses.
Once all the relevant data for a quarter has been compiled into the software, the business will then feed this data directly into HMRC systems. The information that will be sent to HMRC will be summary data for the quarter, not all income and expense items. It is envisaged that the analysis of the data will be similar to the existing categories in the Self Assessment tax return. Smaller businesses will be able to prepare an update that contains only three lines of data – income, expenses and profit. If your business already completes a VAT return then the MTDfB updates will only include the current (nine box) VAT return from April 2019.
When the quarterly update is due, businesses will have one month to compile their records and complete the update.
What about a tax return for the business?
For a sole trader whose only income is from the business, there will be no requirement to complete a Self Assessment tax return.
How we can help you
Please note that, at the moment, you do not have to do anything in respect of these developments. However as always, its good to be prepared.
If you are not currently using a software package for bookkeeping and accounting then contact us. There is a wide range of products available and we will ensure you have the right software package for your business needs.
We specialise in offering cloud accounting support to a wide range of business owners through Norfolk and Suffolk, contact us now for more information on 01379 646943 or email firstname.lastname@example.org.