If you’re a business owner you’ve probably heard the words Making Tax Digital quite a lot recently! But do you know what it means, and how it will affect your business?

We get lots of questions from our clients about MTD and therefore we thought we would put this blog together for you to clarify a few points.

Remember we’re always here to turn to if you’re not sure of anything relating to your finances.

What is Making Tax Digital? 

Making Tax Digital (MTD) is HMRC’s new and improved way of submitting your taxes in order to cut out human error and make the whole process much more efficient for you and for them. By using software to file your returns and keep track of income and expenses it will provide a better insight into your business finances.

VAT registered businesses and MTD

VAT registered business should now already be complying to the rules of MTD. If you’re a VAT registered business you should be keeping the following records digitally:

• Company name, address and VAT number
• VAT which you charge and the rate
• VAT which you pay 
• Adjustments for returns
• Time and value of supply
• VAT reverse charge transactions
• Your total daily gross takings, if you use a retail scheme 
• If you use the flat rate scheme - items you can reclaim VAT on
• If you’re in the Gold Trade and use the Gold Accounting Scheme - the total sales and the VAT you include

You are required to have compatible software for Making Tax Digital. At Bluebells Bookkeeping we use Xero and QuickBooks to ensure our compliance.

Making Tax Digital for ITSA

If you're a Sole Trader then Making Tax Digital for Income Tax Self Assessment (ITSA) has been delayed until April 2024. This only applies if you’re an unincorporated business or landlord and your total business income exceeds £10,000 per year.

From April 2024 you will need to submit quarterly updates to HMRC rather than annually. You will need to provide HMRC with a summary of your income and expenditure for that quarter. You will also need to make an End of Period Statement for each source of your income and a final declaration which will need to include any other income you receive such as savings and any investments you may have.

Although this may seem far away we suggest getting your software ready and your processes in place now so that you’re prepared for the change. We can help you with this.