Making Tax Digital (MTD) is the most fundamental change to the administration of the tax system for at least 20 years.
Making Tax Digital
Making Tax Digital (MTD) is the most fundamental change to the administration of the tax system for at least 20 years
Because of MTD, your relationship with your accountant is going to fundamentally change. H L & W would like to inform our clients about MTD and the profound effect it will have on their businesses- we want to work with them to create a plan.
The essential elements for businesses are:
Paper records will no longer be sufficient: It will become mandatory for almost all businesses and landlords (self-employed, partnerships and limited companies) to use software or a spreadsheet to keep accounting records. Paper accounting records will cease to meet the requirements of tax law.
Quarterly reporting: There will be a requirement to submit updates to HMRC each quarter directly from accounting software, within one month of the end of each quarter.
Impact The changes will affect most businesses, including self employed individuals, companies, ordinary partnerships and businesses with income from different sources, for example self employment and property.
HMRC also acknowledges the changes will affect accountants representing businesses. It believes software categorisation of income and expenditure will allow for a simpler process at the year end when the End of Year declaration is submitted and allow accountants and their clients to focus on ‘higher value business activities’.
Dates The central dates for the phased introduction of MTD remain the same:
- April 2018 for Income Tax
- April 2019 for VAT
- April 2020 for Corporation Tax
What are the exemptions?
- There are exemptions for those who are not able to engage digitally for religious reasons or due to a factor such as age, disability or location (eg, no availability of broadband). These exemptions are the same as the current exemptions for VAT online filing.
- VAT registered businesses with turnover of less than the VAT threshold (ie, businesses who have registered voluntarily) will initially be exempt from MTD VAT reporting but this exemption may be removed from 2020 or later.
- When MTD for income tax becomes mandatory there will be an exemption for businesses and landlords with a very small turnover; the level of this exemption has not been set.
H L & W Limited
HL & W will support you through these changes and provide the ongoing services that you need, it may be necessary to review your current record keeping systems and to reconsider what work you decide to do yourself and which activities you wish to include in the service we provide.
Accountant – Client discussion…
We will need to discuss the transition to MTD with you so that you are ready for MTD reporting for VAT by Spring 2019 and also consider the transition for other taxes.
- May need to consider the possibility of a digital exclusion exemption.
- If client is currently use accounting software it will need to be upgraded. If they are considering acquiring software or joining the pilot, please discuss this with us first.
- If client currently maintains records on a spreadsheet they will need to acquire software which will allow returns and updates to be made directly from the spreadsheets or engage HL&W to do this work.
- If the client currently maintains records on paper their processes will need to change. They will need to provide records promptly after each quarter-end and engage or prepare themselves the bookkeeping and quarterly reporting or acquire and use appropriate software.
The best time to move to software is often at the beginning of a financial year. Do this during the 2017/18 tax year to make it easier for go live with Making Tax Digital.
We understand what you need from us, we provide efficient, reliable bookkeeping, leaving you more time to focus on the activities that truly generate income and results.
- Every business has a legal obligation to keep records of their transactions. There is no set format that must be adhered to but at the very least records of all sales, expenses and purchases should be kept.
- Unfortunately if a business fails to keep adequate records then they can be fined up to £3,000 by HMRC along with an additional tax bill if the inadequate records resulted in an incorrect tax return being filed.
- Aside from the obligations, keeping good records is an essential part of running a successful business. When good records are kept the business owner knows at any given time, how much is owed from customers, how much is owed to suppliers, how profitable the business is and how much cash is available. This means better decision making can be made and improvements in cash flow and profitability can be made if necessary.
Services - for Making Tax Digital (MTD)
We understand that while some people embrace new accounting technology, for many the transition can seem inconvenient and concerning - particularly for those who aren’t used to using online technology. Our MTD Service will:
- Ensure you are compliant with Making Tax Digital
- Reduce the time you spend on administration
- Potentially reduce your accountancy fees
- Cut the cost of a traditional bookkeeper
- Provide greater control over your finances