Making Tax Digital

What is Making Tax Digital & when does it start?

On 31st January 2017 HMRC published their responses to the six consultation documents on how they intend to deliver Making Tax Digital (MTD), which will bring the tax system into the 21st century and forms part of the governments’ plans to make it easier for business to get their tax right and keep on top of their affairs.  MTD is aimed to reduce the £8bn cost to the public purse due to avoidable error, through better use of information.  Further to these consultations, around 3,000 responses were received, which showed overwhelming support for a move to a digital tax system.

From April 2018, unincorporated businesses and landlords that have an annual turnover above the VAT threshold will be required by law to keep their records digitally. Unincorporated businesses and landlords below this threshold have until April 2019 before MTD becomes mandatory and for Limited companies and larger partnerships with turnover above £10 million, MTD is deferred until April 2020.

Many tax payers already keep digital records however, there will be an additional requirement in that, they will be required to submit an update to HMRC every three months. At the moment HMRC are not going to ask tax payers to make quarterly payments unless they choose to do so voluntarily.

Taxpayers will have at least 12 months to become familiar with the changes before any late submission penalties will be applied. HMRC will also re-consult again in the spring on a new penalty model.

What do you need to do?

Use accounting software or apps to keep your business records and provide quarterly updates of information to HMRC. These three monthly uploads will not be accounts as such, and will not need to include such things as stock valuations or tax adjustments. Furthermore, businesses that are currently eligible for three line account reporting (i.e. those below the VAT threshold) will be able to submit a quarterly update with only three lines of data (income, expenses and profit). Submission of quarterly updates will be required one month after each quarter end.

HMRC have confirmed that businesses and landlords will have ten months after their last quarter or until the current self-assessment deadline of 31 January (whichever is sooner) to finalise their year end activity.

Businesses will be able to continue to use spreadsheets to record receipts and expenditure, which they can then link to software to automatically generate and send their updates to HMRC.

Free software will be available to the majority of the smallest businesses, although we don’t yet know which software providers will be providing this or how the smallest of businesses is defined.

Who is exempt?

There will be few exemptions from MTD for businesses. The following are currently exempt from the requirement to keep digital records:

  • Businesses and landlords with turnover under £10,000
  • Charities (but not their trading subsidiaries)
  • Community Amateur Sports Clubs (CASCs)
  • Those who “cannot engage digitally” (religious society, disability, age, remoteness of location)

The government is still considering the initial threshold of £10,000 and a final decision will be made before legislation is laid later on this year.

What action do you need to take now?

MTD is the biggest change to our tax system since self assessment was first introduced in 1996/97. It will therefore present challenges for all taxpayers, but particularly so for those who have always kept their records manually, and give their records to their accountant once a year.

After April 2018, everyone will be required to use accounting software of some sort, and keep records in real time. In fact, many businesses are doing this already, and finding it easier than they first thought! Cloud-based systems offer the advantage of allowing the accountant to ‘log in’ to review how things are going throughout the year. Also, it is surprisingly inexpensive.

You will need to think about making arrangements for your accounting records so that they are ready for digital submission. This may be by simply contacting your current accounting software supplier to ensure your software is up to date.  Suppliers are starting to release information about these changes now, so don’t delay. If you are not sure how you will make the submissions to HMRC, or you do not currently use any form of accounting package, please contact us to discuss your options.

How can we help you?

We have been working closely with HMRC and major software developers to discuss how we can make this easier for our clients, ensuring we have the solutions in place to make this transition as smoothly as possible for you.

We are already assisting many clients preparing and implementing systems to get them ready for the transition to Making Tax Digital. Contact a member of our Making Tax Digital team today to see how we can assist you.

Events

We are pleased to announce we are holding a series of Making Tax Digital Seminars during June 2017 to inform and discuss the impact of HMRC’s new policy.

Making Tax Digital Seminar (Cardiff)

Making Tax Digital Seminar (Swansea)

Making Tax Digital Seminar (Newport)

Making Tax Digital Seminar (Monmouth)

Useful Links

HMRC Summary of Consultation Responses

Xero

Sage Solutions

Quickbooks

 

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