Making Tax Digital

Making Tax Digital (MTD) is the most fundamental change to the tax system for at least 20 years and the essential elements for businesses and landlords are:

Under the MTD rules paper accounting records will cease to meet the relevant requirements and so they will no longer be sufficient: It will become mandatory for almost all businesses (self-employed, partnerships, LLPs and limited companies) and larger landlords to use software or spreadsheets to keep their accounting records.

Quarterly reporting: When ‘full’ MTD is implemented there will be a requirement to submit updates to HMRC each quarter directly from bookkeeping software or spreadsheets within one month of the end of each quarter. These updates will include details of business (or rental) income and the related business expenses by cost type. Potentially the quarterly data submissions under full MTD could be fairly unrefined and so once we have prepared your normal annual accounts we will be required to overwrite the existing quarterly details so that the overall figures match to the annual accounts.

Naturally, we will try to help you through the changes that MTD will bring.  However, the changes will be so fundamental that, ultimately, it will be necessary for you to become involved with the quarterly reporting to HMRC. If you currently operate computerised bookkeeping then the procedural changes should be relatively minor – slightly more so if your records are spreadsheet based – although it will be a complete sea change for those currently keeping fully manual bookkeeping records.

When does it start?

VAT: If your business is registered for VAT and your turnover is above the VAT threshold then from April 2019 you will be required to keep digital accounting records and submit your VAT Returns using MTD compliant software (applies from the first whole VAT quarter starting on or after 1st April 2019). The current HMRC online VAT Return portal will be removed in due course.

Income Tax (self-employed, partnerships, LLPs and larger landlords who complete self assessment tax returns): Whilst the Government intends full MTD to become mandatory for income tax reporting it has indicated that this will not be implemented before April 2020.

Corporation Tax (limited companies): Currently as per the ‘Income Tax’ timings above.

Are there any exemptions?

There are to be exemptions for those who are not able to engage digitally for religious reasons or due to factors such as age, disability or location (e.g. no availability of broadband); these match the current exemptions for VAT online filing.

VAT registered businesses with a turnover of less than the VAT threshold (currently £85000 per annum), such as lower turnover businesses which voluntarily registered for VAT or where income has declined to a level below the threshold, will initially be exempt from VAT MTD reporting although this exemption is almost certain to be removed from April 2020 or later. Until it is removed these businesses will be able to continue to use the normal HMRC online portal in order to submit their VAT Returns.

When full MTD becomes mandatory there is likely to be an exemption for businesses and/or landlords with a small turnover; the level of this exemption is yet to be confirmed and could be subject to change although HMRC has suggested that a business or landlord with an annual turnover of £10000 or less could well be exempted.

What do I need to do now?

If your business is currently VAT registered (and has a turnover above the VAT registration threshold) then it is likely that you will need to discuss your transition to MTD with us and so please contact us as soon as possible about this.  Clearly you need to be ready for VAT MTD reporting by early 2019 and also be considering the prospect of subsequent full MTD reporting.

Therefore if you currently use accounting software then it will need to be updated, if this has not already happened. If you are considering acquiring software, please discuss this with us.

Whereas if you use spreadsheets you will need to acquire interface type software which allows VAT Return submissions to be made directly from the spreadsheets – known as ‘bridging software’.  When submitting data there can be no human intervention.

If you currently maintain paper records then your bookkeeping will need to change and you will need to obtain relevant software and adopt digitally based bookkeeping.

James House
153 Grosvenor Road
Hampshire GU11 3EF

01252 343056
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