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Making Tax Digital – are you ready?

PUBLISHED: 13:57 09 July 2018 | UPDATED: 13:57 09 July 2018

Lucinda Davenport of Crowthers

Lucinda Davenport of Crowthers

Archant

Lucinda Davenport of Crowthers Chartered Accountants explains how businesses owners and individuals can prepare for the upcoming digital revolution of tax

In July 2017 the government announced a new initiative called Making Tax Digital, with the aim of modernising and creating a more efficient tax system for businesses, the self-employed, and landlords in the UK.

The VAT element of Making Tax Digital will come into force in April 2019 (with MTD for income tax expected to launch in 2020), so it is key for self-employed individuals, landlords and business owners, with gross turnover and/or rents over £10,000, to know exactly what the initiative means for them.

Crowthers Accountants Cheltenham Office - (l to r) Crowthers directors Sophie Howard, Jonathan Crowther, Nikki Walding, Ian Cooke and Sara Crowther at the new Cheltenham office (c) Antony Thompson/TWMCrowthers Accountants Cheltenham Office - (l to r) Crowthers directors Sophie Howard, Jonathan Crowther, Nikki Walding, Ian Cooke and Sara Crowther at the new Cheltenham office (c) Antony Thompson/TWM

What will MTD entail?

Records will have to be kept digitally and taxpayers will have to send quarterly updates with summaries of income and expenditure to HMRC. The requirement will be to submit the update within one month after the quarter end. Year-end finalisation of trading results will be required by either 10 months after the end of the accounting period, or January 31 following the year of charge of the profits – whichever comes first.

MTD will benefit businesses in a variety of ways:

● Individuals will no longer have to give HMRC information that it already has or can easily get from employers, banks, other government departments, etc.

● The information that HMRC holds will be easily accessible for individuals to check that their details are complete and correct.

● HMRC will collect and process information affecting tax as close to real time as possible, so there is no need for individuals to wait until the end of the tax year to find out how much they expect to pay.

● Individuals will be able to interact with HMRC digitally and at a time to suit them.

● By 2020, individuals will be able to see an extensive financial picture in their digital account, just like online banking.

Process

Digital record-keeping means either using MTD-approved accounting software or spreadsheets in conjunction with other software, which use APIs, to allow a flow of data from the business to HMRC (and vice versa). Transactions will need to be analysed in accordance with the categories on the current self-assessment return. Businesses will not be required to keep digital copies of their receipts – it is the transactions that need to be stored digitally.

Key dates

For businesses with turnover that exceeds the VAT threshold, MTD obligations for VAT start with effect from the first VAT return period, beginning on or after April 1, 2019. VAT returns for these businesses will have to be filed using third-party commercial software; there will be no keying-in of values into HMRC’s online VAT100 form. VAT-registered businesses with turnover below the VAT threshold can opt-in to MTD for VAT.

MTD for income tax will not be mandated until April 2020 at the earliest; obligations are likely to begin with effect from the first accounting period beginning after April 5 of the relevant tax year that MTD for income tax is introduced.

In practice

Crowthers Chartered Accountants has already moved a large number of clients’ VAT work to a digital system to prepare for MTD and has partnered with KashFlow Accounting Software to provide a cloud-based accounts package solution. This move has helped Crowthers to focus on tax planning for our clients, as records are more accessible and kept up-to-date.

For more information, visit the Crowthers website.

1 comment

  • Good that you are helping to build awareness of this, but I have a couple of comments to make. Not sure what the gross turnover andor rents over £10,000 has to do with MTD for VAT (2nd para), you correctly note in a later paragraph that the relevant threshold is the VAT registration threshold (currently £85,000). When you mention "quarterly updates" under "What will MTD entail?" do you mean the VAT return? Voluntary updates and supplementary data for VAT are not compulsory. If it relates to income tax, then this is unclear. In terms of key dates, please also note that there is a second key date for VAT, i.e. the end of the 'soft landing' period. From April 2020 anyone running more than one software package to build up the VAT return will need to have 'digital links' between them. It is unfortunate that the final edit of the article has made it a little muddled as it will only confuse people trying to contend with an already difficult issue. I would recommend in future that the publication look for a VAT specialist to advise on what is ostensibly a VAT matter (at least for now).

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    Kotswold

    Tuesday, August 7, 2018

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