Digital record-keeping and reports
Ok, so you understand the basics—that you’ll have to submit four reports of your income and expenses instead of one, and a final statement at the end of the year.
But how will digital record-keeping and submitting your reports via an app actually work?
What software do I need for Making Tax Digital?
To use Making Tax Digital, you’ll need to keep records and send your information to HMRC using accounting software. HMRC have not made this software themselves—instead, they’ve created an Application Programming Interface (API) that allows developers of accounting and bookkeeping software to connect their programs to HMRC.
In layman’s terms, this means that you’ll have a limited number of applications to choose from, which are compatible with MTD. You’ll use this to keep a record of your income and expenses and submit these digitally to HMRC.
At Coconut, we’re working hard to ensure we’re fully compliant and ready for Making Tax Digital once it comes into play in 2024.
Can I use Excel for Making Tax Digital?
If you’re still using Excel to track your finances, you can continue to do so after MTD comes in—but we don’t recommend it. The reason is that you’ll have to use ‘bridging software’ to transfer your data from Excel into HMRC’s system.
And in our humble opinion, if you’re going to be downloading, installing, and learning how to use a new piece of software anyway, it might as well be one that you can use to track your finances, send invoices, and capture your receipts and records all in one place (like Coconut, for example 😉)
What records do I need to keep?
Under Making Tax Digital, you’ll have to keep records of all incoming payments and expenses for your self-employment or property business. These records need to be kept in an MTD-approved app. Since you’ll be able to use this app to transfer this information to HMRC each quarter in just a few taps of your screen, this change will likely make managing your finances easier.
Depending on the app you choose, you might be able to connect to your bank accounts and credit cards so that transactions will automatically be imported into the software. If you need to enter information manually, you need to do this as close to the time the transaction took place as possible, and before you submit your next quarterly report.
When will I have to make my first quarterly report?
The deadline to sign up for MTD for Income Tax is 6th April 2024. Once you’re signed up, you’ll have to send a report to HMRC every quarter. You’ll have a month after the last day of the quarter you’re reporting for to send your report.
To make that a bit clearer, here are the dates you’ll have to submit your reports each year:
This means that your first quarterly report will cover the period 6th April–5th July 2024, and will be due by 5th August 2024.
Alternatively, you can opt to submit an update for each ‘calendar quarter’, which means you’ll report for three full months each time instead of the 6th through to the 5th of the month. If you choose this option, the deadline for filing your report will be the same as above—and your calendar for the year will look like this: