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Everything you need to know, and what you need to do now
The way you track, maintain and pay your tax is changing. From 2024, Making Tax Digital will apply to all sole traders and landlords who earn more than £10,000 a year. If that sounds like you, that means you’re going to need to change the way you record and file tax.
So how will the new system work?
Sole traders and landlords will have to keep digital records and use specific software which is compatible with Making Tax Digital in order to track and send updates to HMRC. Then, they’ll also have to send HMRC quarterly updates of their income and expenditure, followed by annual summaries.
Thankfully, your new tax routine doesn’t need to be complicated. All you need to get ready for the switch is to understand what’s required from you from the new rules, and to get set up with the right software that’ll make maintaining your accounts digitally a breeze.
Here’s everything you need to know about the new system, how it will affect you, and what you should be doing today in order to be prepared tomorrow…
When does Making Tax Digital start?
There are various start dates for the new tax process, depending on your business type.
For sole traders and landlords, for example, the new Making Tax Digital rules will start from 6th April 2024. From this date, you should be set up with new electronic systems in place and maintaining digital records using the approved accounting software.
Then, from April 2025, businesses which are partnerships (with individual partners) will follow suit, to abide by the same Making Tax Digital Rules.
Later, company tax is thought to be the next stage, which will most likelyl start from April 2026.
Though these dates may sound rather far away in the future, preparation and staying on top of your accounts is key when it comes to efficient and easy taxes. The sooner you can get on top of your records ready for the new process, the easier the shift will be.
Who will it affect?
As mentioned above, the new Making Tax Digital rules will go on to affect a variety of businesses, but the first group of people who this new scheme will directly affect are sole traders and landlords who earn over £10,000 a year.
That means sole traders who are self-employed tradespeople, freelancers, and workers in the gig economy will all be affected first - and so need to prepare for the change now.
What do the new rules mean for individuals?
So, here’s the important part. Under the new system, you’ll keep, track and manage digital records or your income and outgoing expenses using a HMRC compatible software such as Xero, one of the very best on the market and the one which JF Accounting uses on a daily basis.
Previously, you would’ve filed one big annual submission, with paper records accepted. Paper filings were due by 31st October and online filings due by 31st January.
When Making Tax Digital comes into play, you’ll instead submit four submissions per business: one every quarter. You’ll also file one annual End of Period Statement per business, and one annual ‘Final Declaration’ submission per individual. Paper records will no longer be accepted - instead, you’ll keep digital records and file everything using Making Tax Digital-compliant software, like Xero.
This might sound like a big change, but it actually means smaller amounts of filing to submit, but more often. Keep on track of it and use the designated apps, and it’ll be simple and stress-free - and a lot less work come tax deadline time.
What do you need to do to prepare?
There’s one thing you need to do to prepare for this change now - and that’s to get set up on the correct software, so you’re fully equipped to file taxes digitally.
Forget paper or spreadsheets - what will really simplify your whole accounting process and make balancing the books easier than ever is a great bookkeeping software. We recommend you use the accounting software Xero, which is what we use, too. Not only is it compliant with HMRC’s new process, but it will improve the way you account for your business, too.
You can make the switch from paper accounts to digital bookkeeping right now. For example, being signed up to Xero allows you to also use the its receipt capture app, HubDoc - with it on your smartphone, all you need to do is use it to take pictures of receipts on the go, instead of keeping paper copies, and it will sync up with Xero’s accounting software automatically, so we at JF Accounting can process your filings quickly and easily. You’ll soon realise that digital filing makes accounting easier than ever before… and not to mention, less cluttered.
Ready to prepare to Make Tax Digital with your own sole trader business? Sign up for Xero with us, and discover more services for making accounting simple at JFAccounting.uk
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