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What is Making Tax Digital (MTD) and how will it impact your Trade business?

You may have recently heard the term Making Tax Digital (MTD) and wondered what this new UK tax legislation will mean for your trade business. Perhaps you’ve never heard this term before and have accidently stumbled onto this article. Well, either way, before we dive into what this will mean to your trade business, let’s start with what Making Tax Digital (MTD) actually is and why it is being introduced now.

What is Making Tax Digital?

It’s a question that looms over the financial industry, and if you’re an sole trader or business owner, then this is new legislation that will impact your business too. Making Tax Digital is planned to come into effect in April 2026 and will eventually affect self-employed and individuals who receive property income with an annual intake of £30,000 or more in gross profits.

Making Tax Digital (MTD) is a significant initiative introduced by Her Majesty’s Revenue and Customs (HMRC) in the United Kingdom. It’s an effort to modernise and streamline the tax system, making it more efficient, accurate, and accessible for individuals and businesses.

The core idea behind MTD is to shift from the traditional, paper-based method of tax reporting to a digital, online approach. Under MTD, taxpayers are required to maintain digital records of their income, expenses, and other financial information using compatible accounting software. These digital records are then used to calculate and submit tax returns to HMRC.

The key goals of Making Tax Digital are to:

Simplify Tax Compliance: MTD aims to make it easier for individuals and businesses to keep track of their financial data and ensure accurate reporting. By using digital records and software, the chances of errors are reduced.

Improve Accuracy: Digital records and automated calculations help minimize mistakes in tax returns, ensuring that the right amount of tax is paid. This benefits both taxpayers and HMRC.

Increase Transparency: MTD enhances the transparency of the tax system. HMRC can access real-time financial information, which reduces the need for extensive manual checks and audits.

Promote Efficiency: By going digital, the tax reporting process becomes more efficient. It eliminates the need for paper forms and allows for quicker submissions and responses.

MTD was rolled out in stages, with different requirements for various types of taxpayers and businesses. It’s essential for individuals and companies to understand and comply with MTD obligations to avoid penalties and ensure a smoother tax reporting experience.

The benefits of Making Tax Digital for your Trade Business

So, with this new digital change what is the real-world benefits for your trade business and how will this impact your trade business if you’re a sole trader or limited company.

Sole traders

It may not initially appear to be any benefits of Making Tax Digital for sole traders. It may just appear to be another pointless digitalisation of a process that didn’t require it. However, the evidence for the benefits is growing and it appears to be a worthwhile decision. Making Tax Digital (MTD) offers several benefits to sole traders, making tax reporting and financial management more efficient and straightforward.

Reduced administrative burden

MTD simplifies record-keeping and tax reporting for sole traders. With digital accounting software, you can record income and expenses as you go, reducing the need for extensive paperwork and manual calculations.

Accuracy and error reduction

Using MTD-compatible software helps minimise calculation errors. The software performs calculations automatically, reducing the risk of mistakes in your tax returns.

Real-time visibility

MTD provides real-time visibility into your financial data. You can access up-to-date information on your income and expenses, allowing you to make informed financial decisions throughout the year.

Improved tax planning

With better access to your financial information, you can plan for your tax liabilities more effectively. This helps in budgeting and ensures you have the necessary funds available to meet your tax obligations.

Faster submissions

MTD streamlines the tax submission process. You can submit your tax returns directly from your accounting software, saving time and ensuring you meet deadlines.

Automatic updates

MTD-compliant software often receives regular updates to ensure compliance with tax regulations. This means you’re less likely to miss changes in tax rules and can adapt your financial practices accordingly.

Reduced risk of penalties

By maintaining accurate digital records and submitting tax returns on time, you reduce the risk of incurring penalties for non-compliance.

Enhanced security

Digital records are generally more secure than paper records. MTD-compliant software often includes features to protect your financial data from loss or unauthorised access.

Limited trade businesses

Less administrative burden

MTD simplifies record-keeping and tax reporting for sole traders. With digital accounting software, you can record income and expenses as you go, reducing the need for extensive paperwork and manual calculations.

Improve accuracy

MTD-compatible software automates calculations, reducing the risk of errors in tax returns. This ensures that your financial information is more precise and compliant with tax regulations.

Real-time insights

MTD provides real-time access to financial data, allowing limited businesses to make informed decisions throughout the year. This leads to better financial planning and budgeting.

Efficient tac planning

With continuous access to financial data, you can plan for tax liabilities more effectively, helping you budget and ensure that you have the necessary funds to meet your tax obligations.

Quicker submissions

MTD streamlines the tax submission process. Limited companies can submit their tax returns directly from their accounting software, saving time and ensuring compliance with submission deadlines.

Automatic updates

Some MTD-compliant software often receives regular updates to stay in sync with tax regulations. This reduces the risk of missing important changes in tax rules and ensures your financial practices remain compliant.

Lower risk of penalties

By maintaining accurate digital records and submitting tax returns on time, limited companies can reduce the risk of penalties for non-compliance.

Secure data storage

Digital records are generally more secure than paper records. MTD-compliant software often includes features to protect financial data from loss or unauthorized access.

Embrace the future of tax compliance

It’s time to embrace the future and bid farewell to paper-based tax reporting. Making Tax Digital is the way forward, offering a streamlined, efficient, and stress-free approach to tax compliance. Stay tuned for our upcoming blogs where we’ll explore the practical steps you can take to seamlessly transition into the world of Making Tax Digital.

Take action now and join the thousands of individuals and businesses who have already made the switch to Making Tax Digital. Say goodbye to the tax tangle and hello to simplicity and efficiency. The future of tax compliance is here, and it’s called Making Tax Digital.

For more information and guidance on Making Tax Digital for your specific profession, reach out to our team of experts at Labourless. We’re here to take the stress out boring administrative tasks and help you navigate the digital landscape with ease.