What is Making Tax Digital (MTD)?
Making Tax Digital (MTD) was introduced by the UK government in April of 2019 with the aim of getting all tax submissions online and enforcing digital record keeping.
The plan of the scheme is to make sure all businesses, including self-employed business owners, keep their tax accounts in a way that is approved by the UK government.
MTD is a vital part of the government’s scheme to make it simpler for both individuals and business owners to submit correct taxes. The scheme also aims to transform HMRC into a leading tax authority.
Essentially, the government aims to make it easier for business owners to ensure their taxes are submitted correctly and to transform the way that HMRC operates through the incorporation of digitalisation.
According to HMRC, the reduction in tax errors following the introduction of MTD will result in an extra £610 million generated in revenue between 2020-2021.
What will MTD mean for your business?
MTD will have a significant impact on both small and large businesses, although it is geared more towards small businesses. With the right software, it can save your business both time and money as it will be easier to carry out tax returns and day-to-day accounting.
Small businesses in particular will be able to manage their finances and VAT in one place rather than having to keep track of many documents and receipts in different systems.
If your business is already using software for accounting, this will make the transition much simpler as MTD can be easily incorporated.
If your business is still using manual records, spreadsheets or outdated software, it could be slightly more challenging as you will have to change existing processes to incorporate MTD into your business. You’ll need to find new software that will have to be MTD compatible in order to comply with government regulations. Setting up the software will require a VAT return to be completed before MTD becomes mandatory in 2022 for all VAT-registered businesses.
MTD offers an opportunity to move from manual records into the technology age. You must use accounting software such as Xero and other HMRC recognised platforms to submit your MTD returns, but landlords can go a step further. These systems can be integrated with a property management software in order for all of your business activities and responsibilities to be centralised as well as reducing administration time
The importance of MTD for landlords
As of April 2022, any VAT registered business must submit their VAT returns digitally via an MTD compliant software (currently only companies with a turnover above £85,000 pa). However, in April 2023 many people using self-assessment will need to switch to MTD for their income tax accounting and reporting. This includes landlords, but only those whose income from their property or properties (e.g. rent) exceeds £10,000 pa.
The use of MTD will help landlords to remain compliant with HMRC requirements as it will be mandatory. As a landlord, it would be in your best interest to integrate with MTD before the deadline so that there is no rush. By staying ahead of the deadline, your business will also have more time to become familiar with the new system and learn how to use it sooner.
MTD will make it easier to preserve records because changes will be saved in the software. As stated by law, VAT records have to be preserved, so the manual creation can lead to your business facing legal issues that can easily be avoided.
As online banking is such a vital part of most business operations, your business will be able to view assets and liabilities digitally through cloud-based accounting platforms. MTD will also allow your business to reconcile payments with invoices through accounting platforms.
Is MTD safe for landlords?
MTD is made safe for landlords as personal and business tax information will be stored in a government secure portal.
Accountants will also be able to access digital tax information, but they will not be able to access all information for security purposes. They will only have access to the information that is necessary for them to complete their duties.
The details that should be kept in your digital account is the amount of rent received by your business each month, your expenses and the amount that you use for personal endeavours. Invoice dates must also be reported.
The benefits of MTD for landlords
By incorporating MTD your business will also be able to eliminate tedious, time-consuming spreadsheets that result in wasted time and money for your business.
MTD will help your business to avoid penalties for incorrect information. The use of manual spreadsheets are also prone to human error as well and inaccurate calculations.
All documents sent to HMRC through MTD-compatible software will be sent in the approved API format, which will save your business time trying to manually convert spreadsheets.
The use of MTD will reduce the time spent on accounting duties and calculations that can easily be done digitally. Anything that saves you time, will ultimately save you and your business money.
Lastly, you might even save on accounting fees! By using an accounting software alongside a property management software, your accountant will have direct access to complete records and will be easily able to review your records before submission.