On the surface, the new MTD ITSA compliance requirements from HMRC beginning April 2024 may sound slightly scary. It means that landlords and sole traders will have to change the way things are done with the requirement being quarterly reporting as well as digital record keeping. For landlords in particular, this will be a real step change as many still keep manual records for their property portfolios.
We strongly believe in the commercial benefits of digital record keeping. So, regardless of whether or not you are affected by MTD ITSA, we recommend considering the transition to digital sooner rather than later.
In this month’s Fintech Friday we jump on the Halloween bandwagon and explore the seven deadly sins of paper record keeping (and how to right those sins with digital records).
- Spending lots of time manually processing information.
The software we recommend for digital record keeping removes manual processes. By connecting the software to your bank account, bank transactions will automatically feed in and receipts and bills can be captured electronically. This will greatly reduce the time spent processing information, giving you back more time to manage your business.
- Forgetting to record expenditure
Landlords and business owners are busy people – often managing properties alongside working in other professions or wearing different hats across different businesses. Many confess to only looking at their records on an annual basis when preparing their tax return which means they are more likely to miss out on claiming expenses from earlier in the year. By moving to cloud-based digital record keeping, expenses can be captured on the go by taking a photograph of the receipt on a mobile phone app or emailing/uploading it to the software. This receipt is then processed and recorded, ready to categorise and offset against taxable profits.
- Not keeping data securely
Keeping paper records is not the most secure way to store information. By transferring to a cloud-based system, your records are stored securely. The software providers ensure that data is replicated in multiple data centres and backed up daily. All of the cloud-based accounting software that we recommend uses industry recognised security safeguards.
- Not reviewing KPI’s regularly
What are the Key Performance Indicators of your business? We often find that those who spend a lot of time manually processing information spend little time looking at the results. That is because the manual tasks are so tedious and time consuming, by the time these are complete, the person wants to ‘shut their books’ and forget all about it.
What are your rental yields? Do you know what percentage your ‘loan to value’ is or the occupancy rates across your portfolios? By keeping your records digitally, you will get so much more from your accounting data, and it will become a valuable tool to help manage your business. Key performance indicators will be instantly accessible making it easier for you to make timely business decisions.
- Making errors
Transferring records manually is prone to error and mistakes can be costly for a business. It is only human to make mistakes, whether it be a duplication error, omitting information or recording information. By going digital, information is processed automatically, reducing the chance of making an error and giving you peace of mind that the data is correct.
- Not keeping records for the required time period
HMRC requires all businesses to keep their records for a period of 6 years. Keeping paper records for that length of time requires physical storage. Plus, paper records can be hard to track and retrieve. Uploading your paperwork to cloud gives you the reassurance that your records are safe and in a format accepted by HMRC. It is also easier to search and retrieve records on a digital system.
- Only being able to review your personal tax liability once a year.
Surprises are not always pleasant, especially notice of a tax bill that needs to be paid immediately. By switching over to digital accounting, tax liabilities can be reviewed regularly, making it easier to plan. The software we recommend for MTD ITSA keeps a constant track of your tax liabilities.
How can we help?
MTD ITSA is going to force change whether welcome or not. By April 2024, if you have combined property and sole trader income greater than £10k you will be required to keep your records digitally. You can’t change this but you can choose how to respond to it.
By taking action now you can start getting to grips with digital record keeping before the reporting requirements come in. Say goodbye to manual record keeping and start reaping the benefit. To discuss your requirements, speak to our digital advisory team on 0161 905 1616 or email us on fintech@haroldsharp.co.uk.