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Making Tax Digital (MTD) is part of the UK Government’s plan for modernising the tax system for both businesses and individuals.
For years, HMRC (the Government’s tax department) has had an online tax system that is infamously complicated and slow to use and update such that even accomplishing simple tasks can be long and painful processes. Part of this is due to the laughably complicated UK tax system itself (rather than the fault of the technology), but some of it can certainly be attributed to the antiquated tooling.
Over the past couple of years I have been intrigued (and sort of excited) about the ideas behind plain text accounting. To be excited about accounting is probably unusual but I love its simplicity and logic - and the power it gives you.
Plain text accounting is essentially the practice of keeping track of your finances, but in simple plain-text files. This is in contrast to other accounting/bookkeeping systems - such as Xero, Sage, Quickbooks, GnuCash, etc. - which can have proprietary/closed-source/software-specific formats. Plain text accounting provides a number of additional benefits:
...If you’re a current follower of this blog then you may already know that I’m a bit of a fan of using plain text accounting for managing finances.
I mainly use the Ledger text file format and CLI tool for bookkeeping and reporting on finances. This works great, and I can quickly and easily generate different kinds of reports using a range of simple Ledger commands.
For example, to generate a quick income/expenses balance sheet for a particular date range I can run ledger balance income expense -b 2022/03/01 -e 2022/03/31, which produces something along the lines of the following:
As is the case with many countries, all businesses in the UK must report the state of their financial accounts to the relevant inland revenue service at their year-end (in the UK, this is HMRC).
This is also the case if you are a freelancer or sole-trader (or if you’ve made other untaxed income - e.g. from investments). In these cases, this is called your Self Assessment. Self Assessments are pretty straight forward, and can usually be completed online by the indiviual themself - as long as they have kept good accounts and know their numbers.
I recently stumbled across an article on Hacker News discussing the pros of basic personal accounting using GnuCash - a free and open-source desktop accounting program. The article was interesting as the data geek in me resonated with the notion of being able to query the information in useful ways, particularly after having used the system for enough time to accumulate enough financial data.
The comments on the article’s post also mentioned another tool, Ledger. Whilst GnuCash allows users to input transactional and account information as well as reports, Ledger’s focus is only on the reports - a key feature of this CLI tool is that the actual bookkeeping is made directly (or through other tools) into a text file, which Ledger only reads from and never otherwise touches. Both programs work on the principle of double-entry bookkeeping, but some of the key positives of Ledger are its speed (even when working with several decades’ worth of financial data) and its innate ability to be combined with other useful UNIX tools - both for data input and, if necessary (Ledger’s own reporting outputs are very powerful), output.