Making Tax Digital: Keeping digital records
MTD is coming, but what does that mean for your business record-keeping?
HMRC's Making Tax Digital initiative is coming, a modernisation of tax that will make filing and payment entirely digital. To achieve this, all companies are required to adopt systems that can digitally record their accounts.
You can find out more about MTD in our introduction to the initiative. But what does this mean for your record-keeping? And even if you're not currently eligible to take part in the pilot scheme, how can you make sure your business is MTD-ready?
What does HMRC mean by record-keeping?
When running a business, whether you're operating as a company director or sole trader, it's essential to have an accurate bookkeeping system in place; one that you update regularly. You must track business income and expenses, your income and outgoings, to report and evidence exact figures to HMRC.
Records will vary according to the size of your company and the nature of your business. But whether you operate your accounts on a traditional or cash basis, using simplified expenses or actual costs, complete and accurate records are essential.
Separate bank accounts
Having a separate account for your business makes this a lot easier, especially if it is packed with tools to help your bookkeeping already, like an Amaiz account. This isn’t mandatory for sole traders, but it is a cost-effective way to scale your business, save time and minimise confusion when it comes to financial deadlines.
Recording as you go
It makes sense to record as you go. Amaiz research has shown that a fifth of business owners spend an extra day a week sorting out their admin. With HMRC encouraging companies to move to complete digital capture of their expenses, the benefits of saving time at source are clear. A business app that gathers your records as you work can provide:
- A statement picking up your business card transactions as you go
- Immediate uploading and storage for receipts
- The categorisation of your expenses in line with tax forms
Automation is key to efficiency and accuracy, so you should consider using a system that provides record-keeping with as much automation as possible. If your business account can take on more of the work for you, then it will save you time.
Automated services can:
- Automatically categorise your receipts and invoices as the transactions happen.
- Easily identify gaps in records
- Provide notifications, reminders and calendars to regulate your admin
- Provide a real-time view of your records
What happens to your digital records?
The primary aim of MTD is to provide a seamless communication flow of data between HMRC and your business. Whether you organise your accounts or use an accountant, your digital records must be uploaded to HMRC using MTD compatible software using API.
The rules for MTD for Income Tax will apply to all businesses as of their accounting period starting on or after 6th April 2023.
While MTD remains in a pilot phase, HMRC is encouraging all businesses to start keeping records digitally and give serious thought to the right software to ensure this. HMRC have prepared a list of compatible software capable of submitting tax records at Gov.uk.
And you can open a business account with all the support you need in minutes.