Use of cash for payment in the UK has been decreasing massively for many years. Reportedly, only 12% of all payments in 2023 were made with coins and bank notes, a huge reduction from 2013, when more than half (51%) of all payments were cash.
But the move towards a totally cashless UK seems some way off yet. Cash remains the second most popular payment method, after debit cards, reportedly, with an estimated three million people still relying on paying with cash.
Few UK businesses are “cash-only”, but many more accept cash and card payments. Some of them may be your clients. Many of them will be affected by the introduction of Making Tax Digital (MTD) for Income Tax changes. So, what should you be telling them about getting ready for MTD for Income Tax and what will they need to do with their cash takings when introduced? First, time for a quick recap…
MTD for Income Tax key facts
● Sole traders/landlords with a gross trading/rental income of £50,000+ must comply with MTD for Income Tax requirements from 6 April 2026.
● Those with a gross trading/rental income of £30,000-£50,000 will follow from 6 April 2027 and sole traders/landlords with a gross trading/rental income of £20,000-£30,000 must comply from 6 April 2028.
● MTD for Income Tax requires sole traders/landlords to keep accurate digital accounting records and fully update them at least every quarter. Paper records and manual spreadsheets won’t be an option anymore.
● MTD-compatible accounting software will make it easy to report quarterly income and expense summaries digitally to HMRC, as long as records are accurate and updated regularly.
● After their fourth quarterly summary has been sent, adjustments can be made and an updated tax bill estimate will be shown. Some sole traders and landlords may need to provide HMRC with summaries of other taxable income and tax expenses.
● A final annual declaration can then be made via the software, confirming the accuracy of the figures provided in the previous four quarters. This must be made by 31 January following the end of the UK tax year on 5 April. HMRC will then tell the sole trader or landlord how much tax they owe.
Get your cash clients ready for MTD for Income Tax
If they haven’t already done so, accountants are being advised to tell their clients about the introduction of MTD for Income Tax, ensure that they have the necessary MTD software and start getting their clients to use it as soon as possible. This is essential for clients who have not used tax software before. They need time to get used to it and get into the habit of updating it regularly, so that complying with MTD for Income Tax rules is painless. You may need to support them through this process and provide some guidance or training.
Clients who accept cash payments can and will of course continue to do so after the introduction of MTD for Income Tax. They will just need to get used to entering sales totals into MTD-compliant software, whether every day or at the end of each week, depending on how many cash sales they make. Failure to do so is likely to create problems. The same is true of their tax expenses, especially if they use cash to pay for them.
Your cash clients will still need to regularly lump the cash down to the bank, too, of course. Some things never change.
Coconut is the perfect MTD for Income Tax software solution. It will make the whole switch from Self Assessment to Making Tax Digital for Income Tax quick, easy and painless – for you and your clients.
● Mobile app and desktop access.
● HMRC-recognised and fully compliant.
● Easy to update, use and meet MTD requirements.
● Designed to save you and your clients time.
Sign up to our accountant portal today.
