Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) is a cornerstone of the UK Government’s strategy to modernise tax administration.
The MTD initiative marks a significant departure from traditional paper-based tax returns, in that HMRC believes that it will usher in a new era of efficiency and accuracy in the reporting of financial performance of owner managed businesses.
While many businesses have already adopted digital tax administration, in processing VAT and PAYE returns for example, using the new HM Revenue & Customs (HMRC) app in the future to process an individual’s ITSA could be the first step that many businesses undertake along the MTD path.
Here are some important things you should know about the digital transformation of taxation.
How important is MTD for ITSA?
Recent data from HMRC highlights a growing preference for digital solutions in tax management.
The HMRC app, which allows users to manage various tax-related tasks, has seen a surge in usage with payments totalling £121 million since April 2023.
While this app is not exclusively for MTD for ITSA, it signifies a broader trend towards digital tax management.
MTD for ITSA represents a major shift in how non-limited businesses manage their tax affairs – regardless of size or sector.
Originally intended to launch in April 2024, the first phase of MTD for ITSA will instead begin in April 2026, for the self-employed, sole traders and landlords earning above £50,000. In April 2027, all those earning over £30,000 will then be included in a second phase.
Why should you use MTD ready software before MTD for ITSA goes live?
· Readiness for compliance: Digital record-keeping will eventually impact all sole traders and landlords earning over £30,000. By implementing the processes ahead of the deadline, businesses can make the necessary changes and train themselves on the new software in a less pressured timescale.
· Accuracy and efficiency: Digital record-keeping streamlines processes, minimises errors and ensures accuracy in tax calculations.
· More timely financial and taxation information: MTD services provide up-to-date financial summaries, aiding in better business decision-making; eliminating the stress of year-end tax surprises!
· Ease of use: MTD-compatible software simplifies the process of recording and submitting tax information.
· Compliance and peace of mind: Adhering to MTD regulations ensures compliance, avoiding potential penalties.
· Improved cash flow management: Regular updates on tax liabilities help in better cash flow planning and management.
Seeking guidance from an accountant
Accountancy firms will play a pivotal role in guiding small businesses through the MTD for ITSA transition.
By offering expert advice, assisting in the selection of MTD-compatible software, and providing ongoing support, a qualified accountant can ease the transition for businesses, ensuring a smooth and compliant digital tax journey.
As we embrace the digital future of tax administration, small businesses stand to gain significantly from adopting MTD services for ITSA.
With the Self-Assessment deadline for filing online (January 31 2024) fast approaching, businesses should be starting to think about adopting MTD and transforming their tax management processes, if not for this year but in readiness for reporting 2023/24 tax year income, of which we are already 7 months into!
Accountancy firms, equipped with the proper expertise and tools, are the ideal partners in this journey towards a more efficient, transparent, and compliant tax system.
For further information on the HMRC app please contact our knowledgeable tax experts.
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