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The ultimate guide to making tax digital for tradesmen

As a tradesman, you already have a million and one other things to stay on top of. That being the case you may be wondering “What is making tax digital all about?”. Perhaps you have heard of upcoming changes, but you have been so busy growing your business that you have not had the chance to go into the detail. If that sounds a bit like you, then we’d love to help.

The truth is that Making Tax Digital (MTD) is the biggest change to how tax will be reported for tradesmen just like you. That means growing your understanding of what is involved is vital if you want to stay on the right side of HMRC. We’re going to take a look at everything to do with Making Tax Digital such as Making Tax Digital HMRC requirements and Making Tax Digital software.

What is Making Tax Digital?

For years we have been told that tax doesn’t have to be taxing! The reality though, is that it has never been overly straightforward! Regardless of how great your accountant may be, knowing what records should be kept, for how long, and what should be submitted has always been a little painful.

Making Tax Digital is set to change all of that. It aims to ensure that calculating your tax is easier than ever and that, by using software, the accuracy is better than ever. Sounds good? The part that people are not overly keen on is that you will need to make more submissions. Rather than an annual submission at the end of the tax year, you will need to submit records every quarter.

Have no fear though! Making Tax Digital doesn’t mean that you will be paying any more in tax nor that you be paying more often. It just means that it becomes easier to manage your finances as you can see the direction that your tax account is heading in throughout the year.

Making Tax Digital – HMRC requirements

Having looked at what MTD is, it’s worth taking a look at Making Tax Digital HMRC requirements. It is HMRC that we are all going to keep happy, so let’s take a look at what it has to say.

MTD is already a requirement for some VAT registered businesses. By 2022, all VAT registered businesses will need to make the switch. When it comes to income tax, MTD comes into effect in April 2023 for:

  • All UK businesses and landlords who,
  • Would usually submit a self-assessment and
  • have a turnover of £10,000 or more

Cleary, looking at those requirements, tradesmen like yourself are going to be covered by these requirements. If you are VAT registered, there is a chance that you have already switched to MTD for your VAT. This may have given you the opportunity to learn the system before it applies to income tax.

 

 

Shouldn’t have Making Tax Digital have started by now?

It was announced in September 2021 that the full MTD rollout would be delayed until 2024. HMRC would have liked this to kick in sooner, but accounting bodies have made clear that they are nowhere near ready to make the switch. If that is the case, there is little chance that tradesmen who don’t use an accountant will be ready.

Added to this, we’ve also had a couple of years worth of disruption caused by COVID-19. That being the case, HMRC agreed to extend the rollout time of MTD and give people longer to prepare.

What are the Making Tax Digital deadlines?

As it stands, if you are a self-employed tradesman you will be used to submitting a single annual tax return. This tax return covers the previous years trading and covers your income and expenditure. Effective record keeping certainly makes submission easier!

With Making Tax Digital, you’ll no longer be submitting information about the previous year. You will be putting in regular information during the course of the current year. This means that between 6th April 2024 and 5th April 2025, you will be submitting information for that year.

Making Tax Digital software

MTD works by self-employed tradesmen submitting their tax information to HMRC. However, they need to use approved Making Tax Digital software to do this.  You will use this software to submit details about your business, any employment income, pension income, interest on savings, etc.

The information that you supply needs to sit properly in the HMRC system. Making Tax Digital software ensures that the information is recorded and held in the correct place. This ultimately means that there is no need to put in a separate self-assessment.

Preparing for Making Tax Digital

Submitting tax information throughout the year may not sound overly appealing, but the truth is there are benefits to this new approach. The biggest one is probably the fact that it avoids the usual January panic as people attempt to submit their returns at the last minute. Regardless, MTD is coming and it makes sense to start preparing for this now. The best way of doing this is to start keeping digital records so that it becomes second nature.

By using job management software, such as we offer at Labourless, you will find that you will be in a great place when it comes to MTD. Our software sees you keeping digital records for all aspects of your business such as:

  • Invoices
  • Job sheets
  • Timesheets
  • Uploaded copies of receipts

What this software means is that when it comes to MTD, you already have all of the information that you need in one place. There is no scrabbling around trying to find that missing receipt or trying desperately to reconcile your bank balance. The records that you make every day assure that everything is available at your fingertips. If you want to be in the best place before the rollout of Making Tax Digital, get in touch and see what Labourless has to offer. With a 30 day free trial, there re

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