Making Tax Digital (MTD) is the UK government's flagship programme to make tax accounting easier for businesses and individuals such as salon owners and chair renters. This incoming tax change will impact how self-employed hairdressers and beauty professionals file their tax returns to HMRC. Self-employed businesses with annual business income above £10,000 will need to follow new rules from their next accounting period starting on or after 6 April 2024.
While businesses and individuals have until January 2024 to implement these changes, Mike Parkes from GoSimpleTax says, “the longer you leave it, the harder it will be to adjust.”
In our latest guest blog, Mike explains what you need to do now to prepare yourself.
This blog covers:
- What is Making Tax Digital (MTD)?
- How does it affect the hairdressers and beauty professionals?
- What are quarterly updates?
- What about end-of-period statements and the final declaration?
- Why should I prepare now?
- What is MTD-compatible software?
- Where do I find MTD-compatible software?
- What does my accountant or bookkeeper need to do?
- More from the NHBF
Making Tax Digital is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs. According to HMRC, avoidable mistakes cost the Exchequer £8.5bn between 2018 and 2019. Digitalisation would mean that income can be more effectively assessed, and taxpayers will find it easier to get their taxes right.
Initially, the legislation only applied to some VAT-registered businesses with a taxable turnover above the VAT threshold of £85,000 (those below the threshold required to follow the rules from April 2022). Soon, however, it will apply to all self-employed with an annual income exceeding £10,000. This will begin from their accounting period starting on or after 6th April 2024.
For further information on MTD, visit the government website.
Self-employed hairdressers and beauty professionals with income above £10,000 will be required to use compatible software to keep digital records and send HMRC updates for their Income Tax. This means the end of the free HMRC tax return submission tool – instead, you’ll need to choose an HMRC-recognised platform that’s compatible with MTD for Income Tax.
There will also no longer be a need to submit a Self-Assessment tax return. In its place, you’ll be required to send four quarterly updates, an end-of-period statement, and a final declaration to HMRC.
At least every three months, you’ll need to send HMRC a statement of your business income and expenses. This allows HMRC to present you with a more up-to-date forecast on how much tax you’ll owe.
Your HMRC-recognised software should make this process easy for you as you can log income and expenditure information in real-time.
End-of-period statements (made at the end of your accounting period or tax year) will involve a similar process to the current one for Self-Assessment tax returns.
As for your final declaration, this is where you confirm that the figures submitted to HMRC are final and correct. This submission will then be used as the basis to calculate any tax you need to pay.
Hairdressers and Beauty Professionals have until 2024 before MTD for Income Tax comes into effect. If you leave it too late to sign up for approved software, 2023 could be a bit chaotic with trying to learn a new system while filing your taxes.
Not only would you need to submit your 2022/23 tax return by 31st January 2024 as usual, but you’d also then have to quickly get up to speed with MTD for Income Tax before your first MTD submission. This first submission would most likely be for the period 6th April 2024 to 5th June 2024 and be due no later than 5th July 2024.
That’s why it’s recommended you familiarise yourself with digital tax return software as soon as possible. By beginning to log your 2022/23 income and expenditure as and when they occur, you can effectively be ready to submit the corresponding tax return as soon as you’re able to (6th April 2023, the start of the tax year). That means you won’t have to worry about the 31st January 2024 filing deadline, freeing you up to focus on your new MTD responsibilities.
You can start by choosing an MTD-compatible platform today and getting to grips with keeping digital records.
You or your accountant may already store all your business and financial information in an electronic format.
However, under Making Tax Digital, you must use software that can:
- Keep your VAT information in the digital format required by Making Tax Digital.
- Prepare your VAT return based on this information.
- Communicate with HMRC by sending and receiving files via its Application Programming Interface (API) platform.
The MTD software will ask you to confirm that your return is correct and that you want to submit it to HMRC. You will then receive confirmation that HMRC has received your return.
It is advisable to move to MTD-compatible software as soon as possible.
HMRC is currently working with a wide range of software suppliers to develop suitable software.
You’ll need to check if your current software provider will be able to offer MTD-compatible software.
NHBF Trade Member GoSimpleTax is on the approved list of MTD-compatible software suppliers.
If you already have an accountant or bookkeeper who sorts out your VAT returns for you, they can continue to do so under Making Tax Digital. However, they will need to:
- Use MTD-compatible software.
- Sign up to a new ‘HMRC agent services account’ so they can use Making Tax Digital services on your behalf.
Not sure which accountancy services you need? Find out what’s on offer to NHBF Members and how to go about choosing an accountant.
Find accountants who are NHBF Trade Members.
NHBF Trade Member Go Simple Tax have created a short and informative video to help you with you which can be seen here.
- If you are self-employed and your income is over £10,000, you must go digital from April 2024.
- You’ll need to use MTD-compatible software.
- Your bookkeeper or accountant can still do your VAT returns but must use the correct software.
- MTD-compatible software is currently being developed. (NHBF Trade Member GoSimple Software Limited is on the approved list of MTD-compatible software suppliers.)
Bookmark our website to make sure you’re up to date with all the latest news, views, information and advice relating to the hair, beauty and barbering industry.
Simply register for free to download these in-depth expert guides:
- Starting up
- Salon software
Read more of our brilliant blog posts to gain expert business insights into key hair, beauty and barbering issues.