We're supporting small businesses and the self-employed to get to grips with new Making Tax Digital rules and stay compliant through our new FSB Making Tax Digital app. We’ll take you through four steps you need to follow to prepare for the new legislation so you're not caught out by fines for non-compliance.
What is Making Tax Digital?
Making Tax Digital (MTD) aims to make it easier and more efficient for businesses and individuals to record and declare tax to HMRC. Under the new rules, HMRC will legally require eligible businesses to record transactions digitally and submit returns to HMRC using compatible accounting software.
Here’s what you need to do to get ready for MTD changes.
1. Don’t forget the deadline
There are two deadlines that small businesses and sole traders need to be aware of.
All VAT-registered businesses must now comply with the new rules for VAT returns starting on or after April 2022. Check the Government website for more information about when you need to sign up for MTD based on your filing deadline or read our guide to MTD for VAT for more information. Businesses can already sign up for MTD and start following the new system now.
The new rules won’t change your normal VAT return deadlines or the information you need to send. You can check when your next return is due on your online VAT account.
In April 2024, self-employed businesses and landlords with annual business or property gross income above £10,000 must be MTD compliant.
As deadlines draw nearer, accountants and customer service lines of software providers will get increasingly busy. There will be penalties for non-compliance, so it’s important to act sooner rather than later so you don’t risk any fines.
HMRC has a webinar you can watch on-demand to learn more about what’s changing and how you can sign up for the Making Tax Digital for Income Tax Self Assessment pilot. HMRC also has useful resources, videos and webinars aimed at business owners so you can learn more about how you’ll be affected and the steps you need to take.
2. Make a plan
Once you know which deadline applies to your business, it’s time to get clear on your plan of action. If you have an accountant who looks after your bookkeeping, speak to them to understand what the change will mean. For example, you may need to set up a process for sharing digital records and information.
If you do your own accounts using spreadsheets, manual records or paper-based bookkeeping - or if you’re already keeping your accounts digitally - you must now do this using MTD compatible software to submit your information to the new HMRC MTD portal.
You’ll then use this software to record your income and expenses day-to-day, so the sooner you start, the faster you will become familiar with it. You can start using MTD compatible software today to do your record keeping without joining the MTD pilot. You can connect to the MTD portal whenever you are ready, which means you can get in good shape before you take the final step.
3. Find compatible accounting software
The crucial change with Making Tax Digital is the switch from spreadsheets to compatible software that links to HMRC’s system. This will pull data from your digital records in order to submit your return to HMRC, meaning all you need to do is declare that the information is correct and confirm the submission.
You need to get compatible software in place before you register for the MTD service. It won’t be provided by HMRC, so you’ll need to upgrade existing software or source new software.
The FSB Making Tax Digital app is recognised by HMRC as a solution for submitting an MTD return. FSB Making Tax Digital is a cost-effective solution for small businesses. Users can submit their business accounts directly from the app to the online MTD portal. It allows you to:
- Create and record customer invoices and payments
- Keep track of your expenses
- Store photos of paper receipts
Once connected, the app will retrieve your quarterly VAT submission dates, provide periodic updates, and summarise data ready for submission to HMRC. You can continue to use spreadsheets and the app will read the data from the spreadsheet and submit it to the HMRC MTD Portal. This is referred by HMRC as a ‘Bridging Product’.
4. Register for Making Tax Digital
Now you have your software in place, you’re ready to sign up for MTD. You’ll need to register on the Government website. You won’t be enrolled automatically, so make sure you register in time for your first MTD return deadline.
To sign up, you’ll need to have the following to hand:
- Your business email address
- Government Gateway user ID and password (if you don’t have one, you can create one here)
- VAT registration number
- Latest VAT return
You can find further details about how to sign up for Making Tax Digital here.