{"id":175588,"date":"2025-04-07T13:25:07","date_gmt":"2025-04-07T13:25:07","guid":{"rendered":"https:\/\/peraltafinancing.com\/accounting\/what-is-real-time-tax\/"},"modified":"2025-04-07T13:25:07","modified_gmt":"2025-04-07T13:25:07","slug":"what-is-real-time-tax","status":"publish","type":"post","link":"https:\/\/fivemor.com\/?p=175588","title":{"rendered":"What is Real Time Tax?"},"content":{"rendered":"


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As a major component of Making Tax Digital, Real Time Tax is a term that UK small businesses will need to know if they\u2019re over (or approaching) the VAT threshold<\/a>.<\/p>\n

This guide will explain what Real Time Tax is, how it\u2019ll affect your business and what (if anything) you need to change about the way you work make sure you\u2019re MTD-compliant by April 2019.<\/p>\n

Real Time Tax is an up-to-date view of your tax liability, and any changes to it, available at any point of the year.<\/p>\n

It doesn\u2019t mean that you\u2019ll be paying tax as you go \u2013 you\u2019ll pay the same way you do now. It\u2019s just that, under Real Time Tax, you have a better idea of how much you\u2019ll owe. This is because the amount of tax owed is calculated and made visible as you go, rather than at year end.<\/p>\n

HMRC have said that they will \u201ccollect and process information affecting tax in as close to real-time as possible, to help prevent errors and stop tax building up.\u201d<\/p>\n

By monitoring your tax debt on a much regular basis, both HMRC and you will have a better idea of what your tax bill will look like at the end of the year.<\/p>\n

Under the current system, you\u2019d probably only get a look at your tax liabilities around the time that you\u2019re submitting your self-assessment tax return<\/a>. Budgeting through the year can be difficult if the amount of tax you need to pay is only calculated at this time.<\/p>\n

Free download: <\/em><\/strong>The Freelancer\u2019s Guide to Self-Assessment<\/a>, your comprehensive guide to a stress-free tax year end. \u00a0<\/em><\/h3>\n

That said, there\u2019s plenty of advice on how to budget in the existing model. Some people advise that you put aside a third of your income throughout the year. While this will likely cover your due tax payments, it might leave you with cash flow problems as you go. And, ultimately, you can\u2019t really know how much tax you\u2019ll owe under the current system.<\/p>\n

This can make it difficult for you to make accurate financial projection, and can also cause a great deal of stress. You may either find yourself short of cash through the year as a result of stringent budgeting for your tax bill, or go the other way and find short during tax season.<\/p>\n

With Real Time Tax, budgeting for your tax payment will be a lot easier as you\u2019ll be able to see your business\u2019s financial status and projected tax liabilities at any point. This sort of insight is fantastic for businesses. Now, when you\u2019re working out whether an expansion is possible, whether you can re-invest a certain amount into the business or claim it as profit, or any other business decision \u2013 you have a clearer view of how your tax bill will fit into your annual budget.<\/p>\n

Under Making Tax Digital (MTD)<\/a>, you\u2019ll need to record your finances using digital tax software. If you\u2019re VAT-registered, then you\u2019ll need to use this software to submit figures at least once per quarter. Note: this doesn\u2019t mean you\u2019ll be filing quarterly tax returns. The MTD updates are different.<\/p>\n

Once you\u2019ve submitted your information via our bookkeeping software<\/strong><\/a>, your tax liabilities will be calculated and made visible in your digital tax account.<\/p>\n

Even if you aren\u2019t obliged to join the MTD scheme, the afore-mentioned financial clarity means you can benefit from adopting a Real Time Tax approach for a better view of your annual finances.<\/p>\n

MTD sometimes seems like a myth wrapped in an enigma, which can make it hard to know what is and isn\u2019t true.<\/p>\n\n\n\n\n\n\n\n
Myth<\/strong><\/td>\nFact<\/strong><\/td>\n<\/tr>\n
With Real Time Tax, you have to pay tax throughout the year.<\/td>\nYou don\u2019t have to pay tax any more regularly than you do now. You simply get a more accurate and up-to-date view of what you\u2019ll owe at the end of the year.<\/p>\n

\u00a0<\/p>\n<\/td>\n<\/tr>\n

You\u2019re going to have to change your bookkeeping and accounting methods to be MTD-compliant.<\/p>\n

\u00a0<\/p>\n<\/td>\n

If you\u2019re already using software, then it\u2019s unlikely you\u2019ll change anything at all beyond exporting some data once in a while.<\/p>\n

\u00a0<\/p>\n

If you\u2019re not using software, then you\u2019ll have a bit more work to do. We suggest you start here.<\/u><\/p>\n

\u00a0<\/p>\n<\/td>\n<\/tr>\n

With Real Time Tax, the amount you owe in tax is automatically set aside each month.<\/p>\n

\u00a0<\/p>\n<\/td>\n

This is just information, not an actual system that puts money aside for you. That said, you can use Real Time Tax information to do this for yourself and set up an automatic bank transfer for savings.<\/p>\n

\u00a0<\/p>\n<\/td>\n<\/tr>\n

\n<\/tr>\n<\/tbody>\n<\/table>\n

\"\"\/<\/a><\/p>\n

To learn more about Making Tax Digital and all it involves, including Real Time Tax and the types of data you\u2019ll be expected to keep, then visit our <\/span>Making Tax Digital Hub.<\/a><\/u><\/strong><\/p>\n<\/p><\/div>\n\n","protected":false},"excerpt":{"rendered":"

As a major component of Making Tax Digital, Real Time Tax is a term that UK small businesses will need to know if they\u2019re over (or approaching) the VAT threshold. 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