Making Tax Digital (MTD) is the biggest overhaul to the UK tax system that we’ve seen in a long time. In our last blog post – What MTD Actually Means For You – we weren’t shy about laying out the negative ways that this shake-up will affect sole traders and landlords.
But while it’s important to address the downsides of MTD, there are also plenty of positives to the new regulations. In this guide, we’re going to take a look at the benefits of MTD and how you can make this new system work for your finances.
A Quick Look at the Changes
While we’ve spoken a lot about what MTD is, let’s just have a quick refresher on the main changes:
- Rather than an annual tax return, eligible businesses need to submit four quarterly reports alongside an annual submission (essentially your self-assessment tax return).
- All eligible businesses will need to track and report their finances using MTD-compatible software.
These are only mandatory for self-employed individuals and landlords once you reach the MTD threshold.
What Are the Benefits of MTD?
While there are downsides, there are also plenty of perks to these tax changes. Let’s take a look at how it could benefit your business:
Stay On Top Of Your Finances
The new quarterly submissions mean you have to stay on top of your bookkeeping – no ifs, no buts. You need to ensure all invoices are paid, your reporting matches your actual cash flow, and your books are perfectly balanced.
While this definitely sounds like extra admin, it can actually make day-to-day financial management a lot easier. Rather than scrambling to pull everything together once a year, you’ll be reviewing your income and expenses more regularly, breaking a much larger task down into bite-sized chunks.
If your bookkeeping overwhelms you, this is definitely a positive. Your financial tasks won’t be able to snowball anymore; you have to do them every four months, which makes the work simpler.
Understand Your Cash Flow
Regularly carrying out your tax reporting gives you a more accurate and current understanding of your financial situation. You know your income vs expenses as you go, and can adjust throughout the year based on fluctuations. It’s a great way to spot problems (like delays in invoice payments or unnecessary expenses) before they become much larger issues for your business.
For many sole traders and landlords, that level of visibility can make budgeting, tax planning, and general business decision-making a lot less stressful.
Avoid Tax Bill Shocks
If you frequently go through the year without knowing how much tax you’ll be paying, you’re not alone. Around 31% of sole traders don’t know their tax band, which is guaranteed to lead to tax bill shocks when year-end rolls around.
MTD aims to make sole traders and landlords more aware of just how much tax they can expect to pay before their bill comes in. By staying on top of your taxable profit, you can project your total yearly earnings and quickly work out your tax as you go.
With a better understanding of your taxes, putting enough aside each month to cover your bill becomes second-nature. This reduces stress, helps you avoid penalties, and is good practice for healthy business finances.
Take Full Advantage of Financial Software
While being forced to use MTD-compliant software can be frustrating, there are upsides here, too.
Bookkeeping software is popular for a reason. It automates your cash flow tracking and makes it easier to quickly see what’s coming in, what’s going out, and what you’ll need to set aside for tax. Many platforms can also:
- Automate invoicing
- Match transactions to your bank feed
- Flag overdue payments
The main purpose of MTD software is to cut down on manual admin and reduce the risk of mistakes. That means less time spent trawling through spreadsheets or paper records and more time focusing on the day-to-day running of your business.
How to Make MTD Work For You
MTD is going to be as successful for your business as you make it. This relies on:
- Choosing the right software for your budget and needs
- Taking the time to learn how to navigate your chosen software
- Linking your bank accounts and payment systems where possible to reduce manual data entry
- Setting aside time each month to review your income, expenses, and tax position
Don’t have time for the switch? That’s where we come in. At Angel Bookkeeping and Payroll Services, we’ll help you tap into the benefits of MTD while reducing your workload.
We’ll switch your record-keeping system to MTD-compatible software – which is part and parcel of our bookkeeping services – and track your cash flow so that you don’t have to worry. We’ll also ensure accurate record-keeping and file your quarterly reports on your behalf, making MTD a breeze.
On top of this, our team provides regular financial reports. We’ll break down everything you need to know about your financial health and give you advice to improve your position, giving you a significant financial advantage as you work towards your goals.
Work With Our MTD Bookkeepers
Harness the benefits of MTD while cutting down on admin. With a team of qualified, experienced bookkeepers and the UK’s leading MTD-compatible software, we’re ready to streamline your transition to MTD.
To learn more, book a free 20-minute call with one of our bookkeepers.