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As you may know, over the next year or two, every landlord and self-employed person will need to begin submitting digital tax returns via recognised software. This process of Making Tax Digital (MTD) is one of the biggest tax changes in a generation, aimed at modernising the tax process to make it easier and more accurate.
While the new process will require you to complete five tax submissions a year ‒ four quarterly summaries and one annual submission ‒ you should, in most cases, be able to replace your expensive accountant with cost-effective, MTD-ready tax software, such as APARI.
However, while software is designed to replace your accountant, there are still some situations where it’s best to continue working with your accountant.
So, when should you use an accountant and when is it better to use MTD-ready tax software?
When to use an accountant
While accountants are rarely cheap, bespoke advice and tax planning can pay off in the long run. Software automates the tedious manual work of preparing your account but it can’t provide personalised tax advice (yet!).
Using an accountant can be particularly beneficial if…
1. Your tax affairs are more complicated than average
Landlords may have multiple properties, investments, business interests and other income. This can lead to large, complicated, multi-level tax affairs that are difficult to manage using software. And, with MTD requiring five submissions a year in total, keeping on top of everything may take up a lot of your time.
Hiring an accountant to manage the ongoing MTD process will be expensive but potentially worth it for those with large, complicated incomes. It will also provide peace of mind that nothing is being missed and everything will be completed on time.
2. You need a personalised Tax Planning Scheme
One of the great benefits of MTD software is being able to see your tax liability estimate in real time, allowing you to plan ahead for your tax bill at the end of the year. However, software will not be able to help you create a tax planning scheme to reduce your tax liability in the future.
For example, you may want to consider splitting your property ownership between you and your partner to reduce your income and capital gains tax liability. While software like APARI will help you manage the tax split on the jointly-owned property, it will not provide advice on whether this is a good plan or not. For that, you will need to speak to an accountant.
3. Your organisation is poor
We all have our strengths and weaknesses. You may be a great landlord but struggle when it comes to detail-oriented tracking of income and expenses. Unfortunately, many of us leave it to the last minute to sort out our tax affairs, leading us with even more work to do. And with MTD, we will have even more to do on a regular basis.
Simply sending everything to your accountant may be a pricey option but, if you are organisationally challenged, it may be easier and less time consuming. You’ll also gain peace of mind that everything is happening on time, although your MTD tax software should send you reminders of when accounts are due for submission.
4. You want to maintain the relationship with your accountant
Good relationships are crucial for a successful business. If you have a good relationship with your accountant, they may provide you with additional benefits, such as client referrals, which are worth more than the fee you pay them.
While tax software is almost certainly cheaper than using an accountant, a good relationship may be worth preserving. However, one middle-ground option may be to use software to do the heavy lifting, supplying your accountant with the final submission to review and provide tax planning advice, thereby maintaining the relationship while reducing accounting fees.
When to use APARI
Tax software, like APARI, is great for automating the tedious manual work of converting accounts into a tax format. Users can upload either a bank statement or a spreadsheet, the software will check the data formatting and import the transactions. From there, all a user needs to do is click on the relevant transactions for each property or business.
While this can drastically reduce accounting fees, the software isn’t yet smart enough to provide any individual advice or tax planning.
It’s best to use tax software if…
1. You’ve never submitted a tax self-assessment before
The process for completing a self-assessment tax return can be daunting if you’ve never done it before. Getting it wrong can have serious implications, although HMRC can be quite forgiving if it’s your first time.
The great thing about tax software is that it is highly-structured ‒ by filling out all the fields you can be confident that you’ve provided all the required information. It’s also likely that, in your first year, your tax affairs won’t be too complicated or require personalised tax advice. Of course, if you want reassurance from a tax professional, you can always send them the tax return you’ve completed in APARI.
MTD tax software is also integrated directly into HMRC’s systems for direct filing. So you don’t need to jump through all the confusing hoops on the HMRC website, you simply click ‘submit’ and you’ll get almost instant confirmation from HMRC.
2. You want real time estimates of your tax liability
One challenge a lot of self-assessed taxpayers face is unexpectedly large tax bills at the end of the year. Guesstimating your tax liability only goes so far and gets increasingly complicated the more properties you own.
Some tax software will provide you with a real-time estimate of your tax liability so you always have a fairly accurate picture of how much you will owe come January, allowing you to save just the right amount. All you need to do is to keep your account records up to date and the software will take care of the rest.
3.You are limited on time
While your tax affairs may be fairly straightforward, it can be incredibly time consuming to download all your statements, pull out relevant transactions, and create a spreadsheet with your account information. And that’s all before you start doing the calculations and filling in the paperwork.
Good tax software will do most of the work for you ‒ all you need to do is upload your bank statements and identify transactions relevant to your properties and/or business income. The software will then do the rest for you, making it far quicker and easier to complete your tax return.
4. APARI is FREE!
Becoming an accountant takes many years of training and professional experience. That expertise doesn’t come cheap. Accountants typically charge anywhere from a few hundred to a few thousand pounds to complete your annual tax return. And with MTD requiring you to complete five submissions a year, accountancy fees are set to skyrocket.
Tax software, on the other hand, can be much more cost-effective and, in the case of APARI’s MTD record-keeping software, it’s completely free. For those already eligible for MTD, you can submit both your quarterly returns and final submission for free via APARI.
Those who aren’t yet eligible for MTD can convert their digital records into the required format for a traditional self-assessment tax return and submit directly to HMRC via APARI’s software for just £99+VAT – a fraction of what even the cheapest accountant would charge!
Whether you are ready or eligible for MTD yet, there are some excellent reasons for moving your tax return from your accountant to tax software. The right software will do all the heavy lifting for you, saving time and money on accountancy fees. Then, when you are ready to move to MTD, you will have all your tax records to hand, making the transition far quicker and easier.