NEWS

How to get ready for Making Tax Digital

What is Making Tax Digital?

Making Tax Digital (MTD) will be the biggest change to the UK’s tax system since the self-assessment tax return was introduced in 1996/97.

As announced in the March 2015 Budget, by the then Chancellor, George Osborne, “the death of the tax return” is almost upon us and the UK tax system is to be brought in to the digital age via the online filing of quarterly updates along with a end of the annual return.

Naturally many business owners and self-employed individuals are concerned about how the changeover to digital tax accounts will affect them. Therefore, we have put together some guidance below to help you prepare for the transition.

When will digital tax accounts affect sole traders and property landlords?

If your turnover is above the VAT threshold of £85,000, MTD will apply to you from April 2018. Your first digital return will be due in the fourth month of your accounting year and every 3 months onwards. When a return is due, you will have one month to submit your records. The final end of year return will be due on either 31 January of each year or 10 months after your financial year end, whichever arises first.

When will MTD affect businesses with turnover less than £85,000?

From April 2019, those with turnover below the £85,000 threshold but above £10,000 will also have to comply with MTD. However, as this lower level of income is under review this may be adjusted prior to the introduction of MTD for businesses under the VAT threshold.

What are the changes to cash basis accounting?

The cash basis entry threshold for unincorporated businesses has increased to £150,000 while the exit threshold has risen to £300,000.

HMRC will introduce a cash basis for unincorporated property businesses, which will serve as the default accounting method. There will be the option to make use of the accruals basis if you prefer - the maximum entry limit will be £150,000.

When will Making Tax Digital affect limited companies?

April 2020 – More information is still to be provided by HMRC.

How do I comply?

If you are already using online accounting software you are in the best position possible for the new requirement to comply with MTD.    

If you are not already using online accounting software your first step should be to speak to us about the options available to you. We will tell you which system will be the most suitable for your business as different systems are better suited for some businesses more than others.

Set up and training – Online accounting systems can be confusing if you are not used to using computers and digital technology. Different types of businesses will also require the software to perform different functions.  We recommend getting the system set up by one of our online accounting specialists and having a small amount of training to get you started.

How is this going to impact my business?

Although MTD will cause some inconvenience it is important to recognise the longer term benefits of moving your accounts online.

You will have a much better understanding of your financial position and greater financial control over your business. You can read a case study about one of our clients who moved there accounts online here.

Will I have to pay income tax quarterly?

Not initially. HMRC have said that you will be allowed to pay tax quarterly on a voluntary basis if you prefer to do so, although further details are to be provided. There is however an expectation that it will eventually be a legal requirement to pay tax on a quarterly basis in the future.

Is there an easier way for landlords to comply?

Although landlords will have to file their accounts digitally, there will be simplified online accounting options available to them tailored to suit their requirements. Xero, in particular, has developed software specifically for this market which is expected to be very easy to use, affordable and useful.

Ultimately the scheme is being introduced to reduce the tax gap and provide HMRC with greater control over taxation but this will also provide benefits for businesses as well in the longer term. Online accounting provides you with the information you need to run your business more efficiently and profitably, from keeping track of creditors to analysing costs to see where savings can be made and opportunities seized.

Are there any exemptions or deferments?

HMRC have announced that businesses and landlords with an income of less than £10,000 will be exempt from the need to submit accounts digitally.

Partnerships with a turnover £10,000,000 or above will have until 2020 to comply.

Penalties and fines?

Taxpayers will be given 12 months to familiarise themselves with the changes before any late submission penalties are issued.

Now is the best time to change over to digital accounting

For a number of years we have provided Xero and Quickbooks Online accounting packages at reduced costs for our clients and we have also helped with set up, training and support. In the light of Making Tax Digital, if you are not currently using an online accounting system we would encourage you to consider changing over in the next few months. Please do not hesitate to contact us if you would like more information about our online accounting services.

Your key contact for Making Tax Digital and online accounting is James O’leary.

19/04/2017