For many self-employed people and landlords, tax administration has traditionally been an annual task. Receipts are collected, records are updated and everything comes together before the Self Assessment deadline.
Making Tax Digital (MTD) for Income Tax changes that approach. Instead of leaving record keeping until the end of the tax year, many businesses will need to maintain digital records throughout the year and submit quarterly updates to HMRC using compatible software. While this may sound like additional work, businesses that establish good financial habits often find it saves time and reduces stress in the long run.
What is quarterly reporting?
Under Making Tax Digital for Income Tax, eligible sole traders and landlords will need to:
- Keep digital records of business income and expenses.
- Use HMRC-compatible software.
- Submit quarterly updates to HMRC.
- Complete an end-of-year final declaration to confirm their tax position.
It’s important to remember that quarterly updates are not the same as paying tax every quarter. They provide HMRC with an ongoing summary of your business activity, while your final tax liability is still calculated after the end of the tax year.
Why good bookkeeping matters
The biggest challenge for many business owners isn’t the submission itself—it’s having accurate information available when it’s needed. Missing receipts, uncategorised expenses and incomplete records can quickly turn a straightforward quarterly update into a time-consuming exercise. Keeping your records current throughout the year makes reporting significantly easier and also gives you a clearer picture of your business’s financial performance.
Five practical ways to stay organised
1. Record transactions regularly: Rather than waiting until the end of the month, allocate time each week to update your accounting software. Regular maintenance prevents work from accumulating and makes it easier to spot any missing information.
2. Keep business finances separate: Using a dedicated business bank account makes bookkeeping much simpler. It reduces the time spent identifying business transactions and helps maintain clear financial records.
3. Store receipts digitally: Paper receipts are easy to lose. Many accounting platforms allow you to photograph receipts using a mobile app and store them alongside your records, creating a digital audit trail.
4. Reconcile your accounts frequently: Compare your accounting records against your bank transactions on a regular basis. Reconciling little and often helps identify discrepancies before reporting deadlines arrive.
5. Review your figures every month: A monthly review gives you an opportunity to check that income has been recorded correctly, expenses have been allocated appropriately and any missing documentation has been identified while it’s still easy to obtain.
Quarterly reporting works best when businesses avoid leaving everything until the final week. Building simple routines into your diary helps spread the workload across the year and reduces the likelihood of errors.
Making Tax Digital represents one of the biggest changes to income tax reporting in recent years. Although quarterly updates introduce a new reporting routine, businesses that embrace digital record keeping often find they spend less time dealing with year-end paperwork and have greater visibility over their finances throughout the year.
If you’re unsure how Making Tax Digital affects your business, speak to one of our accountants. We can help you prepare well in advance of your reporting deadlines.
