Making Tax Digital (MTD) is HMRC’s initiative that aims to transform the tax system to make it more effective, more efficient and easier for tax payers. The government’s stated aim is to turn the UK into one of the most digitally-advanced tax administrations in the world by 2020.
Many already have digital accounts with HMRC for submitting VAT returns, PAYE & NI returns or self-assessment tax returns. The project is to take these accounts one great big step further and merge them into one account; simplifying the tax system.
The proposal is to phase the scheme in gradually between 2018 and 2020. For income tax & NI obligations April 2018, VAT obligations from April 2019 and Corporation tax April 2010. Smaller unincorporated businesses and landlords are likely to have a longer timescale.
The system will not mean 4 tax returns a year but 4 income and expenditure statements (cash basis) submitted from your software and a year-end submission to be probably confirmed by an accountant.
Who won’t need to be concerned by MTD?
Those whose self-employed income < £10k
Employees without secondary income in excess of > £10
The proposed new regulations require the businesses to submit their up to date tax positions at least quarterly via accounting software/apps or HMRC approved software. HMRC has said that it will ensure free apps and software products are available, but many businesses and their advisors will choose to use commercially available tax software packages.
Digital accounts will in the future be prepopulated by employed income and bank interest as these will be supplied directly by employers and the banks.
The concept of giving businesses strong indications of their up to date tax liabilities throughout the year seems sensible, but relies on the accuracy of the data provided.
Single payments to HMRC will be made covering VAT, self-assessment, Corporation Tax and PAYE/NI as each business will have one account, rather than a series of separate unconnected accounts. You will be able to choose to make your tax payments by regular direct debits; payments will be required at a minimum of quarterly intervals.
HMRC are promising webinars and digital assistance to help businesses through the transition. Taxpayers will be able to authorise their accountant to view their digital account.
The information released by HMRC to date makes it clear they expect businesses to be using software that has direct bank feeds (such as Xero) and that the bookkeeping will be maintained in real time.
So as a business owner are you worried?
Do you use software that delivers real time data?
Do you feel able to submit monthly or quarter accurate data to HMRC on time?
Do you feel suitably informed to select the right accounting software with adequate data security?
How can you start to prepare for MTD?
Although the proposal is at consultancy stage, it is safe to assume the that principal of MTD will progress.
I would suggest that all businesses embrace the change and use it as an opportunity to discuss options with their accountant sooner rather later.
Many accountants are able to offer support in choosing the right software, support when setting up new software so it is tailored to work for your business; and offer training and ongoing support.
It will be important to maintain accurate books and records throughout the year and to understand your accounts if you don’t intend getting the data reviewed by a qualified accountant prior to submission.
It's worth seeking training from an accountant on understanding your accounts so you can reduce the likelihood of inaccuracies. Investing a few hours of vital training early on could save you hassle later dealing with HMRC.