We are currently in the midst of digital revolution in accounts record keeping. Going are the days of shoeboxes full of receipts and manually written cashbooks. More and more businesses are being asked to keep their records digitally, but why, and how?
Making Tax Digital (MTD) was initially introduced by HMRC in April 2019 for VAT registered businesses whose turnover exceeded the mandatory £85k VAT threshold.
From April 2022 the scheme was extended to any VAT registered business and now, from April 2024 any individual with either self-employment turnover or gross rental income (or a combination of both) of more than £10k per annum must file digital reports on a quarterly basis. The rules will then be extended to include partnerships from April 2025.
The only major business structure which has so far been left out are limited companies which are not VAT registered, although MTD for Corporation Tax may not be too much further away.
Why is Tax going digital?
The principle theories behind the move to digital record keeping are that digital records are time saving for the inputter, can reduce errors and allow HMRC to have more detailed, and quicker access to a businesses’ accounting records. Of course, these principles have mutual benefits for both the business and for HMRC and also tick the environmental boxes with the reduction of paper records.
What is Digital record keeping?
Digital record keeping is a system for recording the finances of the business using software of some sort, as opposed to handwritten records. There are many different options in this realm, starting with simple excel spreadsheets (which require linking software with HMRC) going all the way through to highly powered cloud accounting software systems, the like of which you have probably heard advertised on your radio.
The market for cloud accounting packages has matured significantly in the last 2 years, and there are more and more options for software packages and apps which can assist the record keeper. This market is highly competitive and can be confusing when getting started.
In contrast to MTD for VAT, MTD for Self-assessment will require additional submissions to be made to HMRC. Once this is introduced, businesses will have to report their finances to HMRC on a quarterly basis rather than the current annual system, adding a further layer of compliance for small businesses.
All of the above is likely to produce a pressure point for small business owners and landlords, at least in the short term. Decisions are going to have to be made as to which digital system should be used, who will input the information and how the information will be input. Clearly, front and centre of this will be the cost of the new software and the potential outsourcing of the bookkeeping and digital filing function.
At Rogers Spencer we are ready to help you through MTD and help make these decisions depending on your individual requirements. We offer bookkeeping outsourcing, training, advisory and support packages based on your needs. Please contact us for further information.