The Government initiative ‘Making Tax Digital’ (MTD) intends that by 2020 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 at least quarterly via their digital tax accounts.
According to the Government’s current plans, from April 2018 all but the very smallest of unincorporated businesses and landlords (turnover less than £10,000) will be required by law to keep their records on accounts software (hence ‘digital’).
HMRC has been consulting up until 7 November 2016 on the MTD project. There are six consultations which set out detailed plans on how HMRC propose to make tax digital and to simplify the tax system, covering:
- How digital record keeping and regular updates will operate – this considers compulsory digital record-keeping and quarterly ‘updates’ to HMRC and an End of Year declaration within nine months of the end of the period of account.
- Options to simplify tax for unincorporated businesses, including changes to basis periods, extending cash basis accounting and reducing reporting requirements for unincorporated businesses.
- Extending cash basis accounting to unincorporated property businesses.
- Voluntary pay as you go arrangements, where taxpayers can pay what they want when they want, subject to the normal payment on account rules. Regular direct debit arrangements and quarterly payments on account are also being considered.
- Changes to tax administration, including changes to the enquiry regime, penalties for late submission of quarterly updates and End of Year declarations and also the late payment of tax.
- How HMRC will make better use of the information which they currently receive from third parties, including updating of PAYE codes more regularly and coding out of bank interest via PAYE.
MTD will be a massive change for all taxpayers, but particularly so for those who have always kept their records manually (or on computer spreadsheets), 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. Cloud-based accounting systems such as QuickBooks Online offer this capability with the added advantage of allowing the accountant to ‘log in’ to review how things are going throughout the year.
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 and user friendly. We can offer free demonstrations at our office or over the internet so please get in touch if you would like to know more.
MTD is also a huge project for HMRC. Further to the six separate consultation papers there will be lots of questions to be answered and details to be ironed out, with the government pledging at the November 2016 Autumn Statement to publish its response in January 2017. There have been suggestions that the April 2018 start date will be put back a year. But MTD is coming, so do watch this space for further information and feel free to speak to us about the implications for you.