The Government initiative ‘Making Tax Digital’ (MTD) intends that the vast majority of businesses, self-employed people and landlords will be required to keep track of their tax affairs digitally and to update HMRC on-line at least quarterly within 30 days of the quarter end via their digital tax accounts.
HMRC has been consulting on the MTD project and on 31 January 2017 announced the initial results of the consultations. Whilst they report ‘overwhelming’ support for the move to a digital tax system, the main concerns focused on the capability of small businesses to keep up with the pace of change and technological requirements of MTD.
As a result there are a number of limited relaxations to the original proposals, in particular that spreadsheets can still be used but there will still be a requirement for these records to meet the necessary requirements for updating HMRC quarterly by combining the spreadsheet with software. There is a detailed testing phase which is currently underway before the MTD proposals come in yet the central dates for the phased introduction of MTD remain the same:
- April 2018 for Income Tax
- April 2019 for VAT
- April 2020 for Corporation Tax
Other updates include the announcement that year end accounts must be sent to HMRC either within ten months or by 31 January, whichever is sooner.
Also the option for cash basis accounting has been extended to businesses turning over up to £150,000pa. Incorporated property businesses previously unable to use the cash basis will be able to do so if they have receipts of less than £150,00pa.
Charities will not need to keep digital records(but their trading subsidiaries will). For partnerships with a turnover above £10m, Making Tax Digital is deferred until 2020 because of the complexity of their tax affairs.
HMRC also confirmed that there will be a 12 month soft landing to become familiar with the changes before the (still unspecified) penalties for late submission will be applied.
However for unincorporated businesses and landlords in particular there is still no certainty as to when MTD is to commence exactly and the income threshold over which the new rules will apply (earlier indications suggested income over £10,000 income per year would be caught). There is to be further consideration given to this before the MTD legislation appears on the Finance Bill in July.
Helping you with MTD
As described above the new digital system for businesses will be implemented in stages from April 2018 to 2020. This transition will be easier for early adopters of online accounting software which help you to keep digital records of your income and expenditure (as well as a whole host of other useful features). For a few years now we have been working with leading Cloud accountancy software providers and have been helping clients to move from desktop software to cloud based platforms such as QuickBooks Online which is relatively inexpensive, user friendly and is compatible with MTD. We can offer free demonstrations at our office or over the internet so please get in touch if you would like to know more.
We will be adding updates when more detail is published of the exact implementation plans for MTD so do watch this space for further information and feel free to speak to us about the implications for you.