It was great to meet so many of you at Pro Mobile Conference. Many of you were interested in finding out more about your finances, but unfortunately this is unusual for many small businesses.
During my in-depth workshops, a number of questions came up repeatedly, so I thought it would be useful to summarise and answer some of them.
What does Making Tax Digital for Income Tax Self -Assessment (MTD for ITSA) mean for me?
As I’ve mentioned in previous articles, from April 2024, the government will bring in its Making Tax Digital (MTD) scheme for Income Tax. This will fundamentally change how people look after their tax affairs and will mean that if your turnover is more than £10k then you will be included under MTD rules.
Actions you will need to take:
Keep digital records of all business income and expenditure
Sign up for a new MTD for ITSA account with HMRC before 6th April 2024
Update HMRC at least every three months with a summary of income and expenditure using compatible software
At the end of your accounting period, finalise any profit and loss position via an end of period statement (EOPS). Here you will be able to make any adjustments for allowances and reliefs
The final declaration brings together all of this into one declaration that must be submitted by 31st January in the following year. This final declaration will confirm your tax liability to HMRC
How do I choose the right accounting software?
At the Conference I was frequently asked why I recommend Xero. It comes down to personal choice and I’ve found Xero to be the most efficient. To decide what’s right for you, consider:
The essential features you need
How much you can afford to pay
Whether there are any hidden costs
Taking a free trial
Scheduling a demo
Once you’ve researched the different accounting software packages, prioritise the best ones for you.
The biggest motivator needs to be that you choose a software that you’ll be happy using, otherwise you won’t keep it up to date.
What is considered a capital allowance?
This is an area that is frequently missed off self-assessment returns. If you buy equipment, which as a DJ you obviously do, then instead of entering it as an expense it should be entered as a capital item.
There are various capital allowances available to you:
Annual investment allowance
This is available for both limited companies and sole traders.
You can deduct the full value of an item from your profits before tax. You can claim on most plant machinery up to the AIA, but not on cars! The limit has temporarily increased to £1 million between January 2019 and 31st March 2023.
Further information can be found at www.gov.uk/capital-allowances
130% capital allowances can be claimed on expenditure on new equipment purchases between 1st April 2021 and 31st March 2023.This is only available to companies subject to Corporation Tax, not individuals, partnerships, or LLPs.
There is no limit on the amount of capital investment that can qualify for the super deduction.
Again, further details can be found on the government’s website.
Do I need to become VAT registered?
Because you are playing catch up after Covid, the turnover for some of you is much higher than normal and therefore you may need to become VAT registered. Of course, once your turnover falls below you can de-register, but it will be costly for you to become VAT registered in the first place.
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The full review can be found in Pro Mobile Issue 113, Pages 54-56.