Making tax digital for income tax (MTD) is coming your way if you’re self-employed or a private landlord.
If that’s you then you need to get ready.
Getting ready is a good thing but it has very little to do with tax!
And many people may be pretty much ready already but not realise it.
Every business should have good bookkeeping so the owner knows how their business is performing financially, can see where the risks and problems are and what levers to pull to improve financial performance.
This isn’t new for making tax digital – you always should have been doing bookkeeping for your business and if you have then you’re most of the way there with MTD.
If you haven’t – start now.
Start now because good bookkeeping is right for your business. It’s a bonus that it’s the bedrock of MTD.
Use proper accounting software – there’s a lot to choose from – and make sure your bookkeeping is complete, accurate and up to date.
And make sure you have a separate bank account for your business. Not only is it common sense to have a separate business bank account, it makes the bookkeeping a lot easier, less time-consuming and cheaper.
If you’re a private landlord then make sure you have a separate bank account for your property transactions.
Get your rents flowing in, mortgage payments flowing out, pay property-related invoices online and use a debit card for other items of property-related expenditure.
All property transactions should go through this bank account and it should never be mixed with personal or business transactions.
This isn’t new for making tax digital, it’s what you should have been doing all along and you may already have your property bank account running like a well-oiled machine.
Your property-only bank account will be the foundation of what you need for MTD.
It’s also a very good idea to start using bookkeeping software for your property and link your property bank account to your accounting software.
Health warning: all property owners should make sure they take sound legal and tax advice as owning and letting-out property is complicated and there is a lot more to it than having a separate bank account.
We’ll take a quick detour to look at the element of MTD that everyone is talking about.
Quarterly returns.
Essentially, after each quarter (June, September, December and March) every self-employed and private landlord taxpayer who is caught by MTD must submit a quarterly return of income and expenditure to HMRC.
You can submit quarterly returns from your accounting software.
➡️ If your bookkeeping is up to date in your accounting software then submitting your quarterly returns should be as easy as falling off a log.
There’s a bit more to MTD than quarterly returns to HMRC but separate bank accounts and accounting software get you most of the way there so let’s go back to them.
By the way, quarterly returns are cumulative so if you make a mistake or omit something in Q2 but you correct the mistake in your bookkeeping then your return for Q3 will be submitting the correct cumulative income and expenditure.
There are many benefits from having separate bank accounts and using accounting software if you’re self-employed or a private landlord.
These benefits should outweigh the costs and this is good practice whether MTD exists or not.
There are many combinations of bank accounts and accounting software but if you’re looking for a very low-cost solution then look at the double-act of NatWest which owns accounting software provider FreeAgent.
We do a lot of bookkeeping training every year to help business owners and other users get on top of their bookkeeping and accounting.
We’ll show you how to do the correct bookkeeping for your actual transactions.
We will:
Our accounting software training takes place in half-day slots and each half-day costs £360 plus VAT.
Is our training any good?
This is what one small business owner had to say:
“It’s a different world! I actually understand my accounts and it’s transformative“
Many self-employed business owners and private landlords are already well set for MTD because they have separate bank accounts and use accounting software.
But if you’re not then don’t get overwhelmed by thinking this is tax and this is scary!
Start by getting your banking and accounting right and you’ll be most of the way there.
And if you need help with the accounting or the tax stuff then let’s have a free-of-charge chat about your business – call Michael Austin on 020 7125 0270 or email info@bluedotconsulting.co.uk
Michael
FAQ
If I use Blue Dot Consulting for my bookkeeping training, do I need to change my accountant?
Not at all. We do lots of training to help businesses get the best out of their accounting software and there’s no need to change who does your year-end or tax return work.
Do I really need a separate bank account for my business?
Not legally, but it’s important to keep personal and business expenditures separate and it makes your bookkeeping so much easier and cheaper to do.
Making tax digital – What’s in it for me?
Frankly, if you’re following the advice here about bank accounts and accounting software, then not a lot!
As far as I can see, HMRC is the big winner in terms of money and information collected but MTD imposes additional costs and work on everyone who needs to be compliant.
Related links:
Our QuickBooks training in more detail
Our Xero training in more detail
HMRC policy paper – Making Tax Digital
Why two bank accounts are better than one
Chartered Accountants – Bedford House, Fulham Green, London, SW6 3JW
We don’t believe in forms, we believe in talking to people, finding out your needs and tailor-making a solution just for you.
Give us a ring on 020 7125 0270 or email us at info@bluedotconsulting.co.uk
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