Making Tax Digital – what’s the latest position?

Preparing for ‘Making Tax Digital’

As pro-active Wolverhampton accountants, here at TAG Accountants Group we like to keep our clients informed of future developments that are going to affect them.

Twelve months ago, we published an article setting out the position regarding the implementation of HMRC’s Making Tax Digital (“MTD”) in which we expressed concerns about their timetable. Subsequently, and following significant lobbying from the accountancy profession, that original implementation timetable has now changed.

So how might this alteration to the timetable impact your business?

MTD for VAT

Under the current timetable, from April 2019 all VAT registered businesses with turnover above the VAT threshold will be required to maintain digital records and will need to send their VAT return to HMRC using third-party commercial software that can directly communicate with the MTD system. Please note that the HMRC’s existing online portal will remain available to those businesses with turnover below the VAT threshold that wish to submit their VAT return in this way – they can use the MTD system providing they elect to waive their exemption.

We expect that there will be no free software for MTD for VAT. Instead, HMRC is working with software providers to ensure a range of suitable products will be available to businesses. The software will need to be able to keep records in a digital form, create a VAT return from these digital records, and be capable of communicating with HMRC’s VAT online interface.

Whilst the use of spreadsheets to record data will still be permitted, some compatible third-party software that can transmit that data through the MTD system will be required in order for a VAT return to be completed and then submitted online.

HMRC has also confirmed that businesses will not be required to generate and store invoices and/or receipts digitally, consequently underlying paper documents will still be perfectly acceptable.

The ability to operate the flat rate and annual accounting VAT schemes will remain.

MTD for Income Tax

In terms of MTD for income tax, any implementation is unlikely before April 2020, at which point there will be a requirement to report financial information on a quarterly basis through the MTD system.

Unincorporated businesses need to consider how they will comply with the new requirement to keep electronic accounting records using commercial software. Businesses with annual income below the VAT threshold are expected to be eligible to use “three line accounts”, meaning only income, expenses and profit need to be reported.

Businesses will be able to choose their periods of account and their update periods with a basic requirement for quarterly updates.

Furthermore, those receiving income from property will also need to maintain electronic accounting records and update HMRC quarterly. That said, it is likely there will be some limited exemptions available, e.g. for those with annual turnover below a set amount (probably £10,000) and those who are unable to engage digitally.

The deadline for finalising taxable profit for a period will be 31 January following the year of assessment.

MTD for Corporation Tax

MTD for corporation tax will not be implemented until April 2020 at the earliest and will operate in a similar way with a requirement to submit financial information on a quarterly basis via the MTD system.

We are here to help!

Although the start date for MTD for income tax and corporation tax has now been deferred, it is not going away and key decisions need to be taken regarding accounting software and record keeping – do not wait until it is too late!

We recommend that all businesses discuss these changes with their accountant to determine how they are going to meet these obligations. The team here at TAG Accountants Group are always here to help, so call us on 01902 783172 to book a free consultation over a cup of coffee.

We very much look forward to hearing from you.