Making Tax Digital
On 31st January 2017 HMRC released draft primary legislation and responses to six consultation documents in relation to Making Tax Digital.
This is the biggest change to the tax system since the introduction of self- assessment in 1996.
Announcements are still to be made, including those on decisions such as the exemption threshold and a further delay for some small businesses.
Secondary legislation is also due with more information on digital reporting and record keeping.
Further information is expected with the budget this week.
What are the proposed changes?
HMRC are moving to a pre-populated digital tax account for all individuals and businesses.
Businesses need to move to maintaining their accounting records electronically via accounts software or an app.
Four quarterly reports will be made to HMRC within 30 days of the quarter end. The proposal is that these reports are in the same categories that are currently used in self-assessment. A finalised report can then be submitted to HMRC within 10 months of the financial year end.
The current draft legislation proposes an exemption for businesses where for combined sales / rental income is below £10,000. Professional bodies have requested that an increase to this is considered.
Self-assessment and payment deadlines will remain as they are for the foreseeable future. The initial proposal is that the quarterly reports will not adjust any payments on accounts due.
Initially business and property information will be reported quarterly to HMRC, and categories of tax payer will be removed from Self-Assessment in stages.
From what date will MTD apply?
April 2018 for income tax (staged according to year end)
April 2019 for VAT
April 2020 for corporation tax and partnerships of more than £10m
What is meant by digital records?
Businesses and landlords are to record transaction level data in a digital form either using accounting software or apps. Transaction level data will not be reported to HMRC only summary reports.
HMRC are encouraging businesses to keep information in real time, so that information is more accurate.
Spreadsheets are allowed but will need a digital conversation tool / feed into software to be able to submit data into HMRC’s system. Free basic digital skills training is to be provided.
Software that businesses use can be desktop or cloud, although there is no requirement to scan or retain documents electronically (paper copies will suffice).
What early considerations do businesses need to be making? MTD is going to happen and in the opinion of a lot of professionals it is being rushed in with limited information available and time to test software when it becomes available.
HMRC have only released draft legislation and there is still a lot of key announcements still to be
Businesses and landlords do however need to start the process of moving to MTD and start considering the changes that need to be made to be compliant.
Questions business owners need to start asking themselves are:
Do you need to start using computer software or an app?
Is the current accounting software that is being used up to date and suitable for MTD?
Does the nominal structure and the way income and expenditure is recorded need amending for HMRC reporting?
Are the current financial systems and procedures sufficient to meet the quarterly reporting requirement? Do they need reviewing?
The additional time that will be involved in maintaining digital records, are there suitable tools and apps available to help with this burden?
Over the next few months as more information is available I will be working with clients and other businesses reviewing current systems and procedures, and identifying what needs to change and when to make them MTD compliant.