Making Tax Digital – What we know and how to prepare…July 11, 2017
There has been much written about the Government’s Making Tax Digital proposal. HMRC have published guidance setting out how it is intended to operate, although as yet, nothing has been finalised. There was a huge response to the HMRC consultation in 2016 and now we have a mixture of fact, rumour and speculation.
Here we will set out the facts that are known, how these may affect you and how we can all prepare for this new way of preparing and submitting your accounts and tax to HMRC.
The first point to note is that despite the name making TAX digital, the changes will primarily affect the accounts and record keeping for businesses. Digital record keeping and regular updates to HMRC are central to Making Tax Digital (MTD).
What is MTD?
MTD is the plan to digitalise the tax system with every individual in the UK eventually having their own personal tax account (PTA) and every business it’s own business tax account (BTA).
Businesses, self-employed people and landlords will have to prepare and submit quarterly updates to HMRC using the digital service from the appropriate dates. Those with a turnover below £10,000 will be exempt from quarterly reporting under the current proposals. Partnerships with turnover over £10m will be able to defer their income tax MTD obligations until 2020.
MTD will be introduced gradually. The expected timetable is;
- April 2018 for businesses, the self-employed, and landlords with turnover exceeding the VAT threshold of £85,000.
- April 2019 for businesses, the self-employed, and landlords with turnover between £10,000 and £85,000.
- April 2019 for VAT purposes for everyone who is VAT registered. The current VAT return will be replaced by the quarterly updates.
- April 2020 for entities paying Corporation Tax.
The first quarterly return will be the first quarter of the accounting period that begins after the 5 April in the year applicable to that person or business.
The four quarterly submissions will be due one month after the end of the relevant quarter and there will be a final year end update at which point all relevant tax adjustments can be made.
At the end of the accounting year, businesses are likely to have ten months to complete any annual tax adjustments that are needed via an End of Period Statement (EoPS). The EoPS is completed electronically and it is where the taxpayer declares they have submitted complete and accurate information concerning their trade.
Taxpayers will also be required to make a Final Declaration – the MTD equivalent of a self-assessment tax return. The Final Declaration will report income (and deductions) not reported via the quarterly updates including investment income, dividends, employment income, pension contributions etc. The deadline for submitting the Final Declaration is expected to be the same 31 January as now.
A self-employed person with an annual turnover of £90,000, preparing accounts to 31 August each year would have a start date of 1 September 2018 meaning the first quarter for which a submission must be made to HMRC will be for the quarter to 30 November 2018 due by 31 December 2018.
|Quarter 1||1 September 2018 – 30 November 2018||31 December 2018|
|Quarter 2||1 December 2018 – 28 February 2019||31 March 2019|
|Quarter 3||1 March 2019 – 31 May 2019||30 June 2019|
|Quarter4||1 June 2019 – 31 August 2019||30 September 2019|
|EoPS||Year to 31 August 2019 to include tax adjustments||30 June 2020|
|Final Declaration||Tax year 6 April 2019 to 5 April 2020||31 January 2021|
All quarterly and year end submissions will be compulsory with penalties for any late submissions, however, for the first 12 months of using the digital service no penalties will be charged to allow tax payers to adapt to the new system. The penalties that will be imposed after this period of grace have not yet been released.
What if I have more than one business or let property?
Quarterly updates will be needed for each trade or business undertaken by the taxpayer. If a self-employed trader also has a buy to let they will have to submit a set of quarterly updates for their self-employed business and another set of quarterly updates for their letting business. Separate EoPS’ will also be required for each trade or business undertaken by the taxpayer.
What can you do to prepare?
The most important consideration is how you currently keep your records and whether this could be improved to make the transition to MTD easier. HMRC will require all businesses and landlords to keep and maintain their records in an MTD compatible digital format. The quarterly updates, end of period statements and final declarations will all have to be filed online through MTD compatible software.
Cloud based software providers (such as Xero, QuickBooks, FreeAgent or KashFlow) are working to make sure they will be MTD compatible. If you currently use one of these packages, it is likely the only changes you will need to consider will be the frequency with which you update your books and records.
It is imperative that your data is kept up to date to ensure that you are able to meet the MTD quarterly reporting requirements timeously. The days of updating your books annually, or handing them into your accountant once a year, are nearing an end.
If you do not currently use a cloud based accounting packages, it will still be possible to keep your records using alternative software such as excel. However, for any but the most simple businesses, we would recommend considering cloud based software packages.
How can we help you?
Henderson Loggie are preparing for MTD to make your transition as smooth as possible.
We have a cross department team dedicated to keeping up to date with information on MTD as it’s released, liaising with software providers and supporting our clients in every way possible.
We can help make sure you’ve got the right tools and the right knowledge to get ready for MTD.
We can provide advice on all the options for businesses to ensure you are prepared for MTD. This includes providing spreadsheet templates for recording income and expenditure, to recommending software packages best suited to the specific needs of a business. We have certified Xero trainers and experience with most cloud based accountancy packages on offer.
If you would like to make a start on preparing for MTD or you would just like to discuss, please get in touch with your Henderson Loggie contact or a member of our Making Tax Digital team as follows:
Kenneth McEwen: email@example.com
Fiona Morgan: firstname.lastname@example.org
Barbara McQuillan: email@example.com
Dougy Agnew: firstname.lastname@example.org