HM Revenue & Customs wants to cut costs, by no longer offering free software. Therefore, HMRC are now telling businesses they must use third party software for our various tax submissions. Providing free software, costs money to maintain, fixes bugs, security holes, technology updates and annual tax updates.

They think this new system will increase tax, most accounting bodies disagree. This is because the general public are not tax trained and don't realise there is special treatments for many items. When using software incorrectly, this increases the risk of errors being submitted to HMRC and takes more time for accountants to correct thus increasing the cost. 

• VAT commenced April 2019, becoming mandatory in 2021; they have now switch off the old computer.
• Income Tax having several delays and now due April 2023; (Now delayed until 2026).
• This is where we will have to submit quarterly Profit and Loss and a 5th annual tax return for things like loan interest, asset depreciation.
• Corporation Tax is planned to commence April 2026 (same for companies, quarterly Profit and Loss).

THERE IS ANOTHER BIG CHANGE AHEAD OF MTD - BASIS PERIOD REFORM - At present, you can choose your year-end date. Many choose 31st March as it coinsides with the tax year, but others choose a calendar year or just run 12-months from when they started.

FROM APRIL 2024 - EVERYONE WILL HAVE TO 31st MARCH YEAR-END. This means anyone with a non-March year-end will have to change it to March.

THIS HAS A BIGGER IMPACT YOU WILL BE TAXED ON MORE THAN A YEARS INCOME.

• E.G. If your year-end is say 30th September, we will prepare accounts for 12-months period to 30-Sep-23 and 6-month period to 31-Mar-24.
• Yes you will be paying tax on 18-months profits - is this unfair, yes it is.
• E.G. If If your year-end is say 31st December, we will prepare accounts for 12-months period to 31-Dec-23 and 3-month period to 31-Mar-24.
• E.G. If If your year-end is say 30th June, we will prepare accounts for 12-months period to 30-Jun-23 and 9-month period to 31-Mar-24
• However, the extra profit can be spread over a 5-years but this has advantages and disadvantages.
• Advantage - by spreading the extra profit over 5-years, some people will stay under the £50k or £100k thresholds.
• Disadvantage - tax rates may rise in coming years.
• In some cases it can be tax efficient to change to 31st March for 2022 or 2023 - affect clients will be contacted separtely.
• Advantage - guaranteed lock in current tax rates; who knows what will happen over the next 5-6-years.
• Disadvantage - no spreading but taking the hit now may be the best option.
• Please contact me for any individual examples and tax planning.

MTD - CRITERIA

INCOME TAX (sole traders, partnerships and rental income)

• The new rules will apply to anyone with a turnover (sales) >£10000 p.a. increased to £50000 from 2026 (£30000 from 2027) 
• (One big property or just two smaller rentals will put you over the £10K threshold, most property owners wont now have to comply).

CORPORATION TAX - no further news is available yet.

SOFTWARE TYPES

• PC based software is one that downloads and installs on your desktop/laptop, either purchased outright or leased, depending on the supplier.
• Cloud based which is accessed through your web browser; more providers are moving towards licence for renting software.
• Because we have to keep records for 6 years including 6 years after you close a business, you will have to continue paying software fees for many years after cease trading or selling your properties.
• There are spreadsheet options.

Do not make any quick decisions on purchasing software just yet. Please talk to me before embarking on anything yourself first.

SPREADSHEETS USERS:

• We have to use formulas to generate automatic reports for Profit & Loss and VAT submissions, to upload to HMRC.
• I am charged additional software fees to upload spreadsheets as I was for VAT. Therefore, there will be some additional costs, but they will be less than the software alternatives.
• If we use spreadsheets, we use my AGENT GG. (HMRC calls accountants and tax advisers 'Agents').

SOFTWARE USERS: 

• Software users will use their GG to link the software to HMRC.

COSTS:

• It is clear there will be additional costs including with spreadsheets.
• Many cloud software seems to start from around £20 per month upwards.
• Other software or spreadsheets seems to vary considerably.
• Accountant packages are based on the level of clients.
• There are some free options but I am reluctant to explore these. It is likely to have adverts, there is no incentive for the provider to update their software, fix bugs and maintain it running at optimum efficiency. Certainly, free software often is not as reliable or run as efficiently. With potential HMRC fines for not filing correctly, we want to ensure we use reliable and efficient software, especially when filing close to deadlines.