Table of Contents

Introduction

1. Explain imported income & expense transactions

Step 1. Import a statement

Step 2. Explain income & expense transactions on imported statements

Step 3. Managing Invoices [optional]

2. Manual income & expense entry

What is the effect of bookkeeping in your account?

Introduction

The "MTD Income Tax" plan offered by Clear Books is a streamlined alternative to our "Small," "Medium," and "Large" plans. It enables users to record income and expenses, submit quarterly updates to HMRC, and file their annual income tax return.

This guide explores two bookkeeping processes within the "MTD Income Tax" plan. We advise adhering to a single process rather than switching between the two.

You can also view our video here, which helps demonstrate these bookkeeping processes too.

1. Explain imported income & expense transactions

This bookkeeping process is recommended if you have a significant number of business transactions daily or weekly, or if you use a dedicated business account.

This bookkeeping process can be done in 3 steps: 

Step 1. Import a statement

Income and expense transactions are generated from your bank when you import a statement, and are then ready for explanation. Importing a statement can be achieved in two ways:

• By importing a statement file (Click here to view the guide on how to do this)
• By setting up a bank feed (Click here to view the guide on how to do this)

Bank feeds offer automatic retrieval of new income and expense transactions. In contrast, importing a statement file necessitates periodic repetition of the process.

Step 2. Explain income & expense transactions on imported statements

After importing a bank statement, you can start explaining your income and expense transactions that appear on it. Explaining a transaction confirms its details, which in turn builds your bank account balance in Clear Books. This balance should then match your actual bank account.

The guide below helps show you all the different ways of explaining income and expense transactions on a statement:

How to explain income and expenses on an imported statement on the MTD Income Tax plan

Step 3. Managing Invoices [optional]

You have the option of managing invoices in this bookkeeping process. The management of invoice processes are all explained in the guide here.

2. Manual income & expense entry

This bookkeeping process offers a simplified approach, ideal for users who do not require to explain many income transactions or expenses. This streamlined approach only requires two features (detailed below) and removes the necessity of configuring a bank account within Clear Books.

• Record income using the "Record income" button. HMRC has allowed retailers to enter daily income totals.
• Use the "Record expenses" button to manually create records of business expenditure.

The guide below helps show this process in more detail:

How to manually record income & expenses on the MTD Income Tax Plan 

What is the effect of bookkeeping in your account?

Regardless of the bookkeeping process chosen, your explained income and expense transactions will shape the P&L report. This is determined by the account codes assigned during the explanation of each transaction. These transactions will also generate the total income and expense amounts submitted to HMRC each quarter as part of the MTD or Income Tax rules.