Making Tax Digital

A disaster for sole traders I’m afraid to say.

It will add significant costs and there is little benefit. Ignore the shiny adverts you have seen on TV, if you use an accountant for your accounts and annual tax return then its almost certain that same accountant will do the 4 Making Tax Digital (MTD) returns for you too.

Could you file them yourself? Technically, yes. The adverts say you can, but in reality, the vast majority of sole traders will use an accountant to do that for them

Declaring the income you have taken is fairly straightforward but this isn’t the case with expenses.  Are they allowable or not? For a cost to be allowable, it has to wholly, exclusively and necessarily for the purpose of the business. Defining what that means is part of the reason you use an accountant.  For example, what percentage of an expense like phone costs are allowable, what can you put down as use of home as office, how should stock be valued and what depreciation rates should be used? A qualified accountant works all this out when the annual accounts are done and the same process now applies to MTD.

You are effectively preparing a mini set of accounts each time an MTD return is submitted to HMRC. HMRC argue it allows for a tax forecast to be produced by them but you can ask your accountant for that already at a fraction of the cost. An HMRC tax forecast when your sales are variable is meaningless and indeed could lead to totally misleading information. For example, if you are in the garden maintenance business and submit your first MTD return in July, this is your high sales period. If a tax forecast is based on this it will give a much higher number than one which factors in the quieter winter months.

They won’t admit it, but MTD is designed for HMRC to obtain more information on you.

 It’s as simple as that.