Swindon & Wiltshire News
Expert opinion: Making Tax Digital and what it means for businesses
As we move into a new financial year, one phrase is going to keep cropping up – Making Tax Digital.
And as this is going to affect all self-employed people, contractors, freelancers and companies, it’s worth taking notice of.
HM Revenue and Customs’ MTD Software Advisory Group had its inaugural meeting recently, which raised more questions than answers.
At the centre of MTD is its requirement for businesses to make quarterly returns, digitally.
Instead of saving up all the information for the annual tax return, the information is sent through quarterly and has to be done so online – so no more paper tax returns, except in exceptional circumstances.
It had been all systems for roll-out to begin in April 2017, but this was postponed to 2018 and has now been delayed further to 2019 for businesses below the VAT threshold.
This is good news as it gives those businesses which have not already prepared a bit more time. But there are question marks over how prepared HMRC is to receive this information.
One key point to arise from the Advisory Group is that HMRC had assumed that all businesses were already keeping digital records.
Despite significant feedback from businesses and the accountancy world, HMRC is still surprised that many small businesses are still handing bags of invoices and receipts to their accountant.
But here is what we do know – our guide to Making Tax Digital and what it will mean for businesses
Who is affected?
By 2020, all businesses will be drawn into the system. But the Budget announcement means sole traders, the self-employed and buy-to-let landlords with income of less than the current £85,000 VAT threshold will not have to start quarterly reporting until 2019. This is a one-year deferral from the planned April 2018 introduction.
Are there exceptions?
Yes, currently there is a turnover threshold of £10,000 before MTD kicks in. Charities will not have to keep their records digitally or make quarterly updates
What about businesses over the VAT threshold?
Businesses over the VAT threshold will have quarterly reporting from April 2018.
What about businesses which are VAT registered but with turnover below the VAT threshold?
It seems that any VAT-registered businesses falling below the threshold will be drawn in from April 2019.
What software will be used?
Again, this isn’t clear, and it’s likely that the issue of software is one of the major sticking points and the cause of the delay in implementation.
HMRC has said free software will be available to the majority of the smallest businesses but this is expected to be by independent software providers.
How and why they would want to do this without somehow monetising the data they’ll receive is still uncertain.
How many returns are required?
The draft legislation for the Finance Bill appears to state that returns must be made at least quarterly, with the option of making more frequent reports.
These reports must also be made by each trade separately. There will then be an end of period statement (similar to the current year-end accounts) and a final statement (similar to your tax return), drawing in income from all other sources.
So, a landlord with a separate trading business, may have to make a minimum of four quarterly reports and one end of period report for each source of income, as well as the final statement; a potential 11 returns in total.
What if we don’t opt for MTD?
HMRC says businesses will have at least 12 months to become familiar with the changes before any late submission penalties are applied – but MTD isn’t optional.
For information on Making Tax Digital and what it all means for your business, contact Account director Jon Lacey at Regulatory Accounting on 01793 209 160 or visit www.regaccounting.co.uk
