Making Tax Digital

What is it?

Making Tax Digital is a government initiative to computerise all VAT and Corporation tax submissions by 2020. The idea is that every tax payer and business in the UK will have a single log-in to HMRC to see a summary of their entire tax affairs.
However in April 2017 it was removed from the Finance Bill 2017 which suggests that it may be delayed. As HMRC have poured so much money and resource into this project we think it is unlikely that it will be scrapped all together, but rather just put back while they deal with the general election.
This newsletter summarises what we know so far so you can take steps to understand where your business is, and what the requirements are likely to be in the near future.

What do we know so far?

Making Tax Digital changes the way you will store and send information to HMRC. Rather than being a collection of manual and electronic forms as we currently have, all submissions will be digital, and will be made through accounting software.
If you keep manual records, or do your accounting on spreadsheets this will have a big impact on the way you will do things.
Making Tax Digital covers two separate areas and the following is based on the draft legislation before it was removed from the finance bill, so is our best guess at the moment:

VAT

For most businesses, currently the only information you need to provide to HMRC for your VAT are the numbers in the nine boxes on the return. Your accounting software may file it online for you, but what it’s actually doing is just populating the boxes for you, the same as if you logged in and did in online yourself.

From April 2019, every business in the UK which is registered for VAT will have to make a MTD VAT submission. This means that the VAT return will no longer just be those nine boxes, but will also cover detailed transaction reports uploaded in a particular electronic format.

You (or your accountant) will need to use accounting software to do this, you cannot do it by hand or manually.

Income/Corporation Tax

These changes are being staged in over three years and unusually, affect small businesses first.

April 2018

From April 2018, tax payers that have profits chargeable to income tax and have turnover in excess of the VAT threshold (currently £85,000) will need to file quarterly tax returns, although you will not have to pay your tax quarterly (yet).

As with the VAT returns, you (or your accountant) will need to use accounting software for this. You won’t be able to do it by hand. It means you’ll need to keep records of your business in a digital format within some accounting software throughout the year, so you can make the quarterly tax submissions.

This will affect you if you are a sole trader with turnover in excess of £85,000 or a landlord for example.

April 2019

This is when everyone else who carries on a trade or has taxable income of less than £85,000 needs to begin their MTD submission. There is a £10,000 minimum, so if you have turnover less than this, it won’t apply to you.

April 2020

All corporation tax payers will need to make quarterly MTD corporation tax submissions.

The aim is likely that we will all be paying our tax quarterly in the not too distant future, but reporting quarterly is the first step.

What do I need to do?

The first thing to do is to work out the date you are likely to be affected by MTD, be it for income/corporation tax, VAT or both.

If you are using accounting software – check with your software provider what they are doing about MTD. If you are on a subscription, it is likely you will receive the latest version of whatever software you are on, and if you are with a large provider, it is likely they will be MTD ready. If you purchased your software as a one-off some time ago, it will not be ready for MTD unless you upgrade.

If you are not using accounting software – there are lots of providers out there to choose from and the cloud providers are especially good value for a small business as you can pay a monthly subscription rather than a big one off cost.
There are of course many advantages to keeping your records up to date in accounting software, as it lets you see how your business is doing in a more real-time way, and can take the burden out of some aspects of record keeping.
Shipleys have partnered with Xero for our MTD offering which is a cloud based solution. We can either take on your book keeping for you, or simply get you set up and running with it so you can do it yourself.
Please get in touch if you would like more information.

We would like to thank Rob Wood  for submitting this article for our readers!