For many small businesses and freelancers, the Making Tax Digital legislation will not have a huge impact on how they manage their finances already. A lot of people have already made the switch to a digital way of working, as it’s easier, less time-consuming and more cost effective.
Since the pandemic, we’re used to holding virtual meetings and having everything to hand on our smartphones, so it makes sense to do your accounts digitally too.
Making Tax Digital (MTD) is the government’s initiative to implement a fully digital tax system in the UK. This will mean taxpayers keep digital records and use MTD-compatible software to make tax submissions electronically to comply.
All VAT-registered businesses are required to use MTD-compatible software, like FreeAgent, to:
- store business records digitally
- file VAT returns to HMRC
When is it happening?
As you will already know, the first stage of the legislation came into place in April 2019 and from April 2022 all VAT-registered businesses must now follow Making Tax Digital rules.
By April 2024, Making Tax Digital comes into play for Income Tax for self-employed business owners and landlords.
By April 2025, the rules mean that Income Tax for partnerships with individual partners must be MTD compliant. And in 2026 onwards, HMRC will aim to introduce Making Tax Digital for Corporation Tax.
HMRC’s penalty system for MTD for VAT
If your business is VAT registered and has a turnover of under £85,000, your last VAT return will have likely been the first that you submitted under the new Making Tax Digital (MTD) for VAT rules. These now apply for all VAT-registered businesses.
As with many HMRC initiatives, if you fail to follow the rules of MTD for VAT you could incur a penalty.
Since 31st May 2022, any VAT-registered business that fails to follow MTD for VAT rules has been subject to penalties from HMRC. These include penalties of:
– up to £400 for every VAT return not submitted through ‘functional compatible software’
– between £5 and £15 per day for not keeping the required records digitally in the software
– up to 100% of the VAT you owe as a result of making a mistake by failing to use the ‘checking functions’ in the software. In this scenario, you would also need to pay the VAT you owe.
From 1st January 2023, an additional penalty system will be introduced to address the late submission of VAT returns and late payment of VAT.
How to follow MTD for VAT rules
If your business is VAT registered, but you have not submitted a tax return yet, you need to complete the following steps at least seven days before the VAT return for your first VAT quarter starting on or after 1st April 2022 is due.
– Sign up for MTD on HMRC’s website. You’ll receive an email within 72 hours to confirm that you can submit VAT returns using your chosen software.
– Sign up to MTD-compatible software, like FreeAgent. Gorilla Accounting is a partner of FreeAgent, and using it is fully inclusive in your accountancy package with us.
– Connect your MTD-compatible software with HMRC.
– Prepare your accounts in the software.
– Use the software to make your next VAT return submission – and all subsequent submissions – to HMRC.
FreeAgent generates your VAT return automatically and uses the data in your account to populate it. You can then file your completed VAT return directly to HMRC in just a few clicks.
FreeAgent & Gorilla Accounting
FreeAgent’s MTD-compatible accounting software allows you to submit MTD VAT returns directly to HMRC. It is jargon-free, easy to use and MTD-compatible.
When you sign up to Gorilla Accounting, you’ll have full access to FreeAgent at no extra cost, which is trusted by over 60,000 freelancers, contractors and small businesses.
There are so many benefits of using FreeAgent, including:
- Upload receipts and manage your expenses through the mobile app on the go as well as other devices.
- Allow for automated bank feeds to upload your bank transactions daily.
- Reconcile and categorise your bank transactions in a few easy clicks.
- Create and send personalise invoices, then set the payment to be automatically chased.
All of this is taken care of on the cloud so that your dedicated accountant can spend more time providing tailored tax advice and a personal service for you. When you update your FreeAgent software, your dedicated accountant will have access to this information too, making it even more convenient.
FreeAgent allows small business to:
- Let admin feel effortless with invoices, expenses and projects
- Make smarter business decisions with insights and accounting reports
- Relax about tax with Self Assessment and VAT filing
- Get connected with bank feeds and integrations
Why switch to Gorilla Accounting
We’re FreeAgent Platinum Partners and are proud to offer FreeAgent to all our clients at no extra cost, allowing you to run your business from anywhere and greatly improves efficiency. However, that is not the only service that Gorilla can provide for you.
At Gorilla Accounting, we provide a comprehensive service for small business accounting.
Our SME Accounting Package is just £110 per month, and includes tax planning advise, preparation and submission of statements and returns, payroll, reminder services for all deadlines and payments and much more, as well as your own dedicated accountant who will get to know you and your business inside and out.
We also offer a client service guarantee. If you’re a Gorilla Accounting client and you contact us before 3pm on any working day, you are guaranteed a response on the very same day. Although it is not always possible to answer your query in full, we will at least contact you to advise that we have received your query and we will endeavour to answer your query in full as soon as possible.
If you’re tired of waiting days for a response from your accountant for the most simplest of questions, switching to Gorilla could be the answer.
We provide contractors and freelancers with your own dedicated accountant, unlimited support and are proactive in ensuring that you are compliant and acting as tax efficiently as possible.
Switching to Gorilla couldn’t be easier – we do all the hard work for you.
Gorilla is a forward-thinking technology-driven accounting firm with no hidden fees, providing proactive accounting services for contractors, freelancers, limited companies, sole traders, small businesses, SME’s and more.
We have an efficient, streamlined switching process and we’ll take care of everything to ensure you have a smooth transition. We’ll deal with your previous accountant and get you up and running in no time.
1) Simply get in touch with a member of our New Business team on 0330 107 9670 or request a call back.
2) They will talk you through your options, answer any questions you may have and will recommend the best time (in relation to your year-end) to join Gorilla.
3) Complete our online application form
4) Give notice to your previous accountant – we can do this on your behalf.
5) We’ll obtain all relevant accounting records and information from your previous accountant.
6) We’ll set you up on FreeAgent and you’re ready to enjoy the Gorilla Accounting Service
