If you are already self-employed, you will be aware of self-assessments and your self-assessment tax bill. Many find it a stressful part of being self-employed, having to keep on top of incomings and outgoings throughout the year to ensure you submit an accurate assessment.
What makes this even more difficult is if you are used to storing this information manually.
As the tax return deadline approaches for the 2021 to 2022 tax year on 31st October 2022 for those completed on paper forms, and 31 January 2023 for online returns, HMRC is encouraging customers to plan ahead to give themselves the best chance to complete their Self-Assessment on time.
Completing a self-assessment
Self-Assessment is the process in which you tell HM Revenue & Customs of your income, gains and relevant expenses for the tax year. You do this by completing a tax return, sending it to HMRC and calculating your tax liability. If you do this online, it will calculate your tax liability automatically.
You must send a tax return if, in the last tax year (6 April to 5 April), you were:
- self-employed as a ‘sole trader’ and earned more than £1,000 (before taking off anything you can claim tax relief on)
- a partner in a business partnership
You will not usually need to send a return if your only income is from your wages or pension.
However, you will need to if you also have untaxed income from:
- a COVID-19 grant or support payments
- money from renting out a property
- tips and commission
- income from savings, investments and dividends
- foreign income
Making Tax Digital
The government’s intention is to update the method of reporting taxable income by April 2024. This will be replaced by a predominantly digital system, known as Making Tax Digital.
Making Tax Digital was first announced in the Spring Budget back in 2015 and is designed to transform the UK tax system for individual contractors and self-employed businesses. Its aim is to make the tax system more efficient, effective and easier by introducing digital record-keeping. MTD is to help HMRC to become one of the world’s most digitally advanced tax administrations.
From April 2019, most businesses were also required to file their VAT returns on a quarterly basis. With some already doing this every 3 months, it wasn’t a big change, however these now need to be recorded digitally on MTD-compliant tools. From April 2022, all VAT returns now must be stored and submitted digitally no matter your turnover.
By Making Tax Digital, HMRC intends to collect £4.8 billion by 2023. An estimated £9.4 billion in tax revenue goes missing due to errors or incorrect submissions, which the government aims to reduce.
Thousands of contractors, freelancers and SME owners have kept paper-based records or used Excel spreadsheets in the past to keep track of their expenses or invoices. This can cause mistakes and documents can be lost. Now that we’re at a stage where VAT submissions must be MTD-compliant, Account-Ease can help.
What exactly needs to be recorded digitally?
Keeping certain information as MTD compliant digital records is now a requirement from HMRC, and they need to be as current as possible by storing and recording each transaction.
You will also need to keep the following information as digital records:
- Business name
- Place of business
- VAT registration number
- Rate of VAT charged
- Supplies you made and received
- Their time and value
All your records must be stored digitally for six years. The accounting software you use must also be capable of displaying the audit trail between records and VAT returns.
What happens if you are non-compliant with MTD?
Businesses must comply with MTD or they will face a penalty system. This would be applied to the first VAT return you file, and has been in place since 1st April 2021.
This is a default surcharge that lasts for 12 months, another surcharge if you fail to comply again (applied to the VAT due on your latest return). A points-based system if you continue to fail in your compliance.
The surcharge is calculated as a percentage of the VAT that’s unpaid by the due date. The percentage for the first late payment is 2% of the outstanding VAT, then will increase to 5%, 10% and 15% for further payments.
You can also be fined if your VAT return has errors in it, so it is so important to make sure everything is correct.
How can you avoid any errors?
At Account-Ease, all of our clients get fully inclusive use of FreeAgent included in their monthly fee. FreeAgent is an award-winning bookkeeping software that is MTD compliant, which is cloud-based meaning you can access it anywhere, any time.
Handling financial data, especially online, is something a lot of people worry about. However FreeAgent is completely secure, with all the financial data safely transferring to their backup servers several times an hour.
Whether you’re a locum, contractor, sole trader or small business owner, you can submit your digital VAT returns through FreeAgent. Thousands trust FreeAgent daily to track expenses and income easily and quickly.
7 benefits of using FreeAgent & Account-Ease
1) It’s cloud-based
You can access your account any time on any device as long as you have an internet connection. It is comprehensive, meaning you can keep on top of it from your shop, on a site, in the office or at home.
2) Use it out and about
Because of the cloud-based basis of FreeAgent, you can upload receipts and manage your expenses straight away when you’re on the move.
3) It saves time
Many tasks are laborious or repetitive, but with FreeAgent you can automate it using clever inbuilt features, meaning you can focus on the day-to-day tasks of running your business without as many admin distractions.
4) It’s more efficient for billing
Billing and invoicing can be automated and you can track unpaid invoices in real-time, meaning you never miss any payments. You can also set up payment reminders against due dates or expected payments and send personalised invoices to automatically chase payments.
5) It’s MTD compliant
VAT returns are generated automatically and electronically to HMRC, with the help of your dedicated accountant at Account-Ease
6) It’s in real-time
Your bank transactions are uploaded daily thanks to the automated bank feeds. Allowing you to categorise transactions and keep on top of finances with a few simple clicks. You can also track your time within it, enabling you to log time spent on tasks and projects before accurately billing your clients.
7) Reporting is made easier
You can quickly generate balance sheet reports and profit & loss statements, making reporting much easier.
Join Account-Ease Today
When you join Account-Ease, you will be assigned your own dedicated accountant who will have access to your accounts within FreeAgent. Meaning you don’t have to send them paperwork or information as they can access it straight away. From there, they can give you tailored advice and a personal service by getting to know you and your business better.
Ready to switch? We do everything for you, so you don’t have to worry about a thing. Call us today on 0208 133 4599 or request a call back to find out how Account-Ease Accounting and FreeAgent can help you.
