What is MTD?
MTD stands for Making Tax Digital and is a relatively new way of filing information with HMRC.
Firstly, it’s a new HMRC website for filing Returns that is replacing the Government Gateway site for filing VAT Returns.
Secondly, as part of the MTD changes, HMRC will eventually require additional accounting reports to be filed by businesses and landlords each calendar quarter.
Thirdly, the principle rule change is that accounting records must be kept in digital form and uploaded to the MTD site electronically. It is currently still possible to keep spreadsheets and do MTD filing using some very inexpensive ‘bridging software’ but there has, in recent years, been a big uptake of cloud accounting systems – such as Xero, QuickBooks, FreeAgent – that deal with the MTD filing in an automated way.
The first stages of MTD related to the filing of VAT Returns. This stage is now complete and all VAT Returns (for periods beginning on/after 1st April 2022) need filing via the MTD system.
The next stages of MTD will be about submitting quarterly returns for income tax purposes (sole traders and landlords with gross income over £10,000 from April 2024; and partnerships (of individuals partners only) from April 2025), and for corporation tax purposes (from April 2026). We will put more information here as it is released, but one of the main features of the MTD project so far has been the moving back of deadlines by HMRC as its development hits problems – so things may yet change.
Cloud accounting software
At AMS Accountancy we have clients who use various accounting systems and they all tend to be cloud based in some way – for ease of use (such as bank feeds; report generation; sharing information in real-time with other staff/directors and the accountant) and in order to cope with MTD. The most popular software packages we deal with are:
Xero – which is very popular with both clients and our staff. Xero is an ideal system for small businesses and is completely on the cloud. We are a silver partner with Xero and can set clients up and give training and support on the software.
QuickBooks – along with Xero, this is the market leader in cloud accounting software. Our staff are very used to dealing with it – setting it up; training; giving support – but I would say it has fewer fans than Xero.
FreeAgent – is another, simpler, cloud accounting software. It is provided free to customers of NatWest and we are seeing more clients using it as a result.
Sage 50cloud Accounts – is used by some of our bigger clients perhaps with business premises and a number of employees. It is a more traditional PC-based system but its data is on the cloud. I would say traditional accountants and bookkeepers like its double-entry visibility – but many small business owners prefer the more intuitive cloud-based systems like the ones mentioned above.