Why do I need specialist software?
HMRC has stipulated that all returns must be filed digitally, using HMRC-approved software.
Rob Thomson, head of tax at Affinia, explained: “Sole traders and landlords will firstly need to ensure they have registered with HMRC for income tax and then have software in place which allows a direct connection to HMRC via the government gateway account.”
This includes accountancy software that links to your business bank account, such as Xero, Sage, QuickBooks or FreeAgent, to manage your day-to-day business finances. These packages let you create the digital records required and file them directly to HMRC.
You’ll usually need to pay a monthly fee, but some banks, including Starling Bank and Monzo, provide free MTD software for customers.
Alternatively, if you’re not ready to ditch your trusty spreadsheets, you can use so-called bridging software that connects your records with HMRC. As this type of software doesn’t provide full accountancy services, including invoicing, expense tracking and bookkeeping, it’s usually the cheaper option.
Mr Thomson added: “In accounting software, the digital transactions can be created via bank feeds or through the user interface which then automatically pull into the quarterly update. Bridging software is instead mapped via Excel spreadsheets, which verify and submit data when uploaded.”
Do I need professional help?
Some businesses will use an accountant or bookkeeper to file their returns – especially if they’re already using one. And, if that’s the case, you may already be using accountancy software.
But, it is entirely possible to handle MTD yourself.
Mr Thomson said: “Those with a single income stream, dedicated business bank account and a general know-how with computers and financial admin may find the new requirements manageable without professional help. Others may find benefit in initial training and set up assistance from accountants, from which point they will be more confident with preparing their quarterly updates independently going forwards.”
To find the best software for you, Ms Rose suggested doing a bit of research to establish which one you’ll find easiest to navigate. “Many solutions have produced YouTube videos, and it may be a case of watching lots to get a feel of what would suit you best.”
Compare costs carefully too – ensuring you’re not paying for services you won’t use – but bear in mind the expense will be tax-deductible.
What if I miss the deadline?
Currently, if you file your annual tax return late or don’t make a payment in time, you’ll have to pay a penalty starting at £100 for the late return, plus interest on the outstanding tax.
But HMRC is being more lenient with MTD – at least initially. Ms Rose said penalties for late submissions will be based on a points system, where you will get one point for each late report. “Basically, once you have reached the threshold – which is four – a £200 penalty is automatically issued. Points will generally expire after 24 months, provided you remain below the threshold.”
She also said HMRC had confirmed it would not be issuing any points for late submissions in the current tax year. “However, you are still required to file your final declaration on time, akin to your self-assessment return,” she said.
The final declaration will have its own point system, said Mr Thomson, with just two points enough to trigger a fine.
He added: “Penalty points are only issued for delayed submissions, not for errors made on the return. It’s currently unclear if those who are joining the scheme in future years will be given this soft-landing period.”
