Making Tax Digital (MTD)
The legislation was postponed ahead of the election so there are still a lot of unknowns but this explains what is likely to happen.
Any updates will appear at the top but below is the core details which will need to be read first. When you revisit, you will only need to read the update.
Latest update – 13/7/17 HMRC have announced that to start only businesses with a turnover above the VAT threshold will have to keep digital records and even this has been delayed to April 2019.
What is Making Tax Digital?
Making Tax Digital will make it a legal requirement for businesses to keep their records digitally.
From April 2018 sole traders, partnerships and those with rental income will need to start sending quarterly accounts electronically to HMRC
Eventually it will be compulsory for businesses and landlords with income over £10,000 but to start it is likely to be compulsory for those with income over the VAT threshold (currently £85,000), but this hasn’t yet been confirmed.
Within a month of quarter end, tax payers will need to submit Profit and Loss numbers to HMRC.
After the 4 quarters have been submitted, then there is a 5th submission to bring in any annual and tax adjustments so that the 5 added together will be the equivalent of your yearend accounts and tax return.
Quarterly data will need to be submitted via:
- Cloud accounting software that meets the MTD requirements e.g. Xero
- Desktop accounting software that meets the MTD requirements
- Spreadsheets that upload to MTD
It will not be possible to enter numbers direct to HMRC software.
Interaction with VAT
By 2019 the numbers submitted will also provide HMRC with your VAT numbers, no separate return will be required. During the transition we will probably need to do both.
Who and when?
Legislation starts for all yearends starting after 5th April 2018.
Businesses and landlords with yearends 5th April 2018 will be the first to start. Your first MTD quarterly return will cover the quarter from 6th April 2018 to 5th July 2018 and will need to be submitted by 5th August 2018.
Businesses with yearends of 31st March 2018 will not start until a year later. Your first return will be from 1st April 2019 to 30th June 2019 and will need to be submitted by 31st July 2019.
Top Tip – Businesses - Change your yearend to 31st March so that you delay this by a year. However this is not an option for Landlords as your tax year by statute runs to the 5th of April.
Those with turnover below the first threshold (yet to be confirmed but likely to be around the VAT threshold, currently £85,000) will be introduced in April 2019.
Limited companies are planned to be introduced from April 2020.
Is there help at hand?
Yes, talk to us, we will be able to help.
Is it all bad news?
Undoubtedly, this will feel like more red tape for businesses, another thing to do that isn’t just running your business but:-
You can see this as an opportunity to get on top of your numbers on a quarterly basis, and start using your accounts quarterly to help you make decisions about your business.