Self-Assessment Deadlines Made Easier: Making Tax Digital
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 a process by which you inform HM Revenue & Customs of your earnings, income and expenses relevant for this tax period. This is done by filling out an income tax return, submitting your tax returns to HMRC and then calculating your tax liabilities. If you submit this information on the internet, it determines your tax obligation by itself.
You are required to file a tax return if, during the previous period of taxation (6 May to April 5,) you were:
- self-employed as a sole trader, and earned over £1,000 (before subtracting anything you are entitled to tax relief for)
- A partner in the business partnership
You will not usually need to send a return if your only income is from your wages or pension.
But you’ll need to make sure that you have an income that is not taxed from:
- COVID-19 grants or support payments
- the money earned from renting out a house
- tips and commissions
- the income earned from investments, savings and dividends
- foreign income
Making Tax Digital
The intention of the government is to modernize the process of calculating tax-deductible income until April 2024. It will replace it with an entirely digital system called the Making Tax Digital.
Making Tax Digital was first introduced at the time of the April Budget in 2015. It is designed to revolutionize how the UK taxes for individuals, entrepreneurs and self-employed companies. The goal is to make tax administration more efficient, efficient and simpler by the introduction of digital records-keeping. MTD will assist HMRC be one of most technologically advanced tax administrations.
In April of 2019, all companies were also required to prepare their VAT return on an annual basis. Some were already doing it every three months this wasn’t a huge change, but these have to be recorded electronically using MTD-compliant software. Beginning in April 2022 the VAT returns are required to be recorded and submitted electronically regardless of the amount you earn.
Through Making Tax Digital, HMRC intends to take in £4.8 billion in 2023. It is estimated that £9.4 billion of tax revenue gets lost due to mistakes or inaccurate tax returns, something the government hopes to reduce.
Many freelancers, contractors and SME owners have kept records on paper or utilized Excel spreadsheets previously to track their invoices or expenses. This could lead to mistakes and records can get lost. We’re now at a point where VAT submissions have to conform to MTD, Gorilla 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.
Additionally, you will need to save the following data as digital records
- Name of the business
- Location of business
- VAT registration number
- Rate of VAT that is charged
- The items you made and then received
- Their value and time
All of your records should be kept in a digital format for a period of 6 years. Your accounting program you are using will also be capable of showing the audit trail that runs between your the VAT returns and records.
What happens if you are non-compliant with MTD?
Companies must comply with MTD or else they’ll be subject to penalties. It will be applied to the very first VAT return you file and has been in effect since 1st April 2021.
This is a default charge which lasts for 12 consecutive months. There is a further surcharge in the event that you do not adhere to the rules with the requirements again (applied to the VAT due on your last return) as well as an based-on points system in the event that you fail to meet your compliance.
This surcharge can be calculated in a percentage of VAT not paid on deadline. The first late payment is 2.2% of the amount due in VAT. It will then increase to 5%, 10% and 15% for any subsequent payment.
There is also the possibility of being punished if the VAT return is contaminated with errors it, which is why it’s essential to ensure all is in order.
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.