Making Tax Digital for Income Tax April 2023 (Jan 2021 Update)

Making Tax Digital for Income Tax

What is Making Tax Digital for income tax?

If you are a VAT registered business then you will likely have already heard of Making Tax Digital.  Making Tax Digital is where a business is required to keep their records digitally and submit your financial information to HMRC on a quarterly basis.  Digital records mean that you have stored your records in a computerised format, this can be within an accounting software, or within a spreadsheet.  If you use a spreadsheet you will still need to use a software to transmit the date from your spreadsheet to HMRC.

 

How do I keep digital records?

Most businesses are already keeping records digitally, either within a spreadsheet or within the many available accounting software.  It means that each business transaction is detailed within your records.  You can still keep paper copies of receipts, however many of the available software allow you to attach receipts to transactions, relieving you of this need too.  As mentioned above, if you are using spreadsheets you will still need a software to make the submission to HMRC, so you may as well cut out the middle man and go for an accounting software.  This will make the whole record keeping process a lot easier.  There are many cost-effective software solutions and as we get closer to the deadline there will be many more!

 

Who is affected by Making Tax Digital?

If you are a sole trader with a turnover (total sales income) of more than £10,000.00, if you are a UK landlord with a turnover (total sales income) of more than £10,000.00, or if you are both a sole trader and a UK landlord with a combined turnover (total sales income) of more than £10,000.00 then as of April 2023 you will be required to sign up for making tax digital for income tax.  You can also sign up to the pilot from now, but there are some limitations with the system right now, you can only sign up if you have one business and have not received any COVID financial support.  These limitations will not affect sign up in April 2023 – it will be mandatory for all sole traders and UK landlords with a turnover that exceeds £10,000.00.

 

Making Tax Digital for Income Tax

How often do I have to submit my Making Tax Digital summary to HMRC?

You are required to submit a summary to HMRC every three months.  If you are VAT registered you can align the summary submissions with your VAT returns to make this more convenient.  Once you have made your summary submission you will receive an estimated tax calculation from HMRC.  This is great to help you budget for your annual tax bill.

 

Do I still need to fill in an Annual Tax Return at the end of the financial year?

Yes, you will still need to submit your annual tax return and all tax due will need to be paid by 31st January of the year following the end of the financial year you are submitting for.  The good news is, that having made your quarterly summaries to HMRC you will be right on top of your records and preparing and submitting your tax return will be a doddle!

 

How do I register for making tax digital?

You can register by visiting the HMRC website here.

You don’t need to do this until nearer the time, unless you want to sign up to the pilot.

 

Do you have any questions?  Feel free to get in touch by emailing contact@brightbookkeepingservices.com and I will happily help!

If you need help keeping on to of your records, you can find out about our bookkeeping services here.

 

Help and Support for Business’ and the Self-Employed During the Coronavirus Crisis

The government has announced a range of support for business to help them overcome the coronavirus crisis.  There will also be support for the self-employed and freelancers announced soon.  It is expected that the support for self-employed and freelancers will be announced on Friday.

Here is an outline of what has been announced and what is expected:

 

Rate-relief & Grants

If your business was in receipt of rate relief, or had a rateable value of less than £15,000 on the 11th March 2020 you will receive a cash grant from the government of £10,000.

This is being distributed by local councils, so if you are eligible check their website to see how they are distributing grants.  If you have had to close your business it may be worth putting a mail redirect from your business premises to your home address as it is likely many will send a letter.

If your business is in the hospitality, leisure and retail sector and your rateable value was more than £15,000 and less than £51,000 on 11th March 2020 then you will receive a grant of £25,000.

Businesses in the hospitality, leisure and retail sector now eligible for 100% rate relief.

 

Employers

Employers are required to pay sick pay for any employee that is self-isolating from day one of absence.  The government will repay the first two weeks of this sick pay.  It is still unclear how the sick pay will be refunded, and as far as I am aware your payroll software won’t have the capability to do this for you because it is so new.  If you are using a software you will have to manually override the sick pay so that the waiting days are paid.  Check with your software provider for advice on how to do this.

Keep a record of the dates of isolation, the employee name and the amount of sick pay paid to them.  I expect this will be reclaimed in a similar way to SMP, but again HMRC have not announced how this will be done yet.

You can now furlough employees and reclaim 80% of wages from HMRC.  Again, how this will be reclaimed is still unclear.  If you have made redundancies, this scheme is available from the 1st March, so you may be able to reconsider this, you will need to check with HR as to how this will work.  This scheme is set to run for three months from 1st March 2020, however it will be extended if necessary.

 

VAT

If your VAT falls due between 20th March 2020 and 30th June 2020 you can defer this, it must be paid before 31st March 20201.

If you have a direct debit set up to pay your VAT, then you will need to cancel this in order to defer your payment.  If you don’t then you just don’t pay.  VAT returns do still need to be filed.

 

Self-Employed

Self-employed people will receive 80% of their average income up to £2550 per month.

You are eligible if:
You have profit of less than £50,000.
The majority of your income is through self-employment.
You completed a 18/19 tax return.

You now have 4 weeks from today to submit a 18/19 tax return if you haven’t done so already.

HMRC are hoping to have this in place by start of June and you should receive a letter from them asking you to complete an online form if you are eligible.

I know for a lot of you that are just growing your businesses this support will not be enough.  Remember, if you are renting you can speak to your landlord, perhaps consider paying just half of your rent until we are all back on our feet.  If you have a mortgage consider taking a mortgage holiday.

You can also try to apply for universal credits to see if you can get additional support and speak to your local council and see if they can help in any way.

 

I know there are still several people that won’t get the support that they need.  We can only hope that more help will be announced in the coming days and weeks.

 

Stay safe!

Budget March 2020

As expected, the budgets main focus was on how we can overcome the corona virus, by providing extra funding to the NHS and supporting the economy, which will inevitably suffer as a result of the outbreak.

 

Here are the key points from the budget:

 

Coronavirus

 

  • Additional funding for the NHS
  • Sick pay will be paid to all who self-isolate or contract the virus without qualifying period
  • Businesses that employ less than 250 staff members will be reimbursed for sick pay paid to employees as a result of coronavirus
  • Small business rate relief will be abolished for all eligible businesses with a rateable value of less than £51000
  • Businesses that are already eligible for small business rate relief will receive a £3000 cash grant
  • Businesses can defer tax payments to HMRC to help them manage cash flow if they struggle as a result of Coronavirus

 

All in all this looks like a great way to protect our economy from the threats the coronavirus poses.  There are gaps, and it will still be a struggle for business on the whole.  Extra money for the NHS is always a bonus, I hope they can find the extra staff and resources they will need.  I think the NHS should always be a priority in any budget.

 

Business rates!  Yey!  Business rates have always been a strain for smaller business and a massive barrier to entry for new businesses too.  This is a temporary measure, to help with cash flow, however the chancellor has launched a review into business rates and the results will be shared in autumns budget.  Lets hope these changes are here to stay.

 

I think there are gaps, the self-employed without a brick-and-mortar premises will only receive employment and support allowance and the employed SSP.  Whilst this will be paid from day one of self-isolation or sickness as a result of coronavirus, it is only £94.25 per week, and when you compare this to the average salary for £29009 it’s still a long way off and individuals will struggle with bills.

 

 

Tax

 

  • Personal allowance to remain at £12500 for the 20/21 financial year
  • National insurance threshold to rise from £8630 to £9500 from April
  • Corporation tax is frozen at 19% for the 20/21 financial year
  • A business rate review has been launched today with the results being shared in the Autumn budget

 

The personal allowance is remaining the same, which is slightly disappointing, it has risen consistently over the past few years, however the NI threshold is rising so there will still be a benefit to our pockets all be it small!

 

Corporation tax remains at 19%, which it has been at since 2019.  This was expected as Boris Johnson pledged to keep it the same in his election campaign.

 

The review of business rates is promising, I hope this means the government is recognising the strain these rates put onto small business and how it makes it really difficult for new businesses to find a premises.

2
Mar, 2019

MTD For Income Tax

Who will MTD for Income Tax affect?

MTD will affect businesses. By businesses HMRC means anyone that that runs an unincorporated business, including sole traders, people who are self employed and landlords.

 

What is MTD for income tax?

Making tax digital for income tax is part of the change that HMRC are making to how taxes are managed. Businesses (as defined above) will have to keep digital records and submit quarterly summaries to HMRC. The self-assessment return required for the end of each financial year will become an End of Year Submission.

 

How does it work?

Businesses will need to start keeping their financial records digitally and submissions need to be made using API enabled software. At this point in time there are not many software providers offering this, but as we get closer to the change there will be many different options to choose from. You can check the list of HMRC approved software providers here: https://www.gov.uk/guidance/find-software-thats-compatible-with-making-tax-digital-for-income-tax.

 

These quarterly summaries are not subject to compliance checks by HMRC but will be used for forecasting income tax figures. Once a quarterly submission has been made, if you find an error you can still change the data accordingly using the API enabled software and the change in data will be reported in your next summary.

 

Summaries must be submitted within 30 days of the end of the quarter. For example if your business’ financial year runs with the tax year from the 6th April to the 5th April then your first quarter will end on the 5th July and your submission will be due by the 5th August.

 

The deadline for the end of year submission will remain the same as the self-assessment deadline, the 31st January following the tax year end.

 

When will MTD for income tax be rolled out?

HMRC have not given a specific date for MTD for income tax going live yet. What they have said is that it will not go live before April 2020. It can be speculated that the go live date will depend on the success of the MTD for VAT which goes live April 2019, and the MTD for Income Tax pilot which is open now.

 

If you are interested in joining the pilot, please do get in touch and we can discuss this in detail and see if it is right for you.

22
Feb, 2019

Self-Employed Expenses

Expenses for the self-employed an be a bit of a minefield, especially if you have recently set up our business and are dealing with lots of new and exciting things!

 

So what we need to know is what can we claim for and what can’t we claim for. Please note different rules apply to traditional accounting and cash basis accounting, there are detailed accordingly below.

 

 

Traditional Accounting

 

Any cost you incur while running your business is a business expense. Some things you will need to claim for as an allowable expense and some things you will need to claim for as capital allowance. The general rule is that if you will make use of what you are purchasing for more than two years it is claimed as capital allowance and if it will last less it is an allowable expense.

 

Examples of purchases that can be claimed as capital allowance are:

  • Office printers
  • Cars
  • Legal costs incurred when buying property or vehicles

 

Examples of purchases that can be claimed as allowable expenses are:

  • Office stationary
  • Petrol
  • Travel (excluding travel between home and work)
  • Insurance
  • Legal Fees (excluding legal fees incur when buying cars/ property)
  • Bank charges
  • Work uniforms
  • Staff wages & benefits
  • Materials

 

 

 

Cash Basis Accounting

 

Any cost you incur while running your business is a business expense. Some things you will need to claim for as an allowable expense and some things you will need to claim for as capital allowance.

 

Examples of purchases that can be claimed as capital allowance are:

  • Cars (unless you are using simplified expenses)
  • Legal costs incurred when buying property or vehicles

 

 

Examples of purchases that can be claimed as allowable expenses are:

  • All office costs
  • Petrol
  • Travel (excluding travel between home and work)
  • Insurance
  • Legal Fees (excluding legal fees incur when buying cars/ property)
  • Bank charges (only up to £500 can be claimed)
  • Work uniforms
  • Staff wages & benefits
  • Materials

 

Expenses you can’t claim as a business expense

 

You cannot claim for:

  • Non-business use of your office
  • Parking / Speeding fines
  • Clothes for work that are not required for safety reasons or are not uniforms
  • Entertaining Customers
  • Paid networking events

 

 

You can view a more detailed list on the HMRC website here.

8
Feb, 2019

Registering as Self-Employed with HMRC

 

When do I need to register as self-employed?

 

You need to register as self-employed if your turnover is greater than £1000. This is what you have earned from self-employment before taking off any expenses. If your turnover is less than £1000 from self-employment you do not need to declare this to HMRC.  This is referred to as a  tax free trading allowance.

 

You need to register and complete a tax return even if you have made a loss. For example if your business had sales figures of £1200 and expenses of £1500 you will have made a loss of £300.  Your turnover is £1200 (over the £1000 trading allowance) so you need to tell HMRC.

 

The very latest you can register with HMRC is by 5 October after the end of the tax year during which you became self-employed. For example, if you started your business in June 2017, you would need to register with HMRC by 5 October 2018.

 

If you are starting a business and you want to keep the business finances separate from your personal finances, you may want to think about registering straight away.   Most banks require your UTR number (unique trader reference that HMRC give you when you register) to open a business bank account.

 

 

How do I register as self-employed?

 

You can register online here: https://www.gov.uk/log-in-file-self-assessment-tax-return/register-if-youre-self-employed

 

You will need to create an online account with HMRC if you haven’t already done so.

 

Its useful to use an email address that you check regularly as HMRC offer lots of helpful webinars, tips and reminders and they send emails about them. You can find lots of help and support on the HMRC website here: https://www.gov.uk/guidance/help-and-support-if-youre-self-employed

 

If you are unsure about whether or not you need to file a return or register for self-employment, you know how the saying goes… It’s better to be safe, than to be sorry.