Making Tax Digital
From Shipshape July 2017 | Uploaded 19th July 2017
HMRC announced the updated arrangements for the implementation of making tax digital on 13 July 2017.
From April 2019, businesses with turnover above the VAT registration threshold (£85,000 for 2017/18) will be required to use MTD for their VAT, but it will not apply for other taxes until April 2020 at the earliest.
When Making Tax Digital (MTD) was first announced in the March 2015 Budget, the Government claimed that it would result in the abolition of the annual tax return and make life easier for taxpayers.
But critics say MTD’s quarterly returns and annual summary will mean five returns a year instead of one! So what’s the big picture and what does it mean for Shipshape readers?
The big picture
MTD is part of HMRC’s ongoing efforts to make better use of information it already has from sources other than individual taxpayers, such as employers, pension providers, banks and other Government departments. In addition to using it to check an individual’s affairs (this isn’t only about tax returns – for example, the ‘real time information’ payroll process enables quick identification of people in work who claim state benefits), HMRC will also make it available to individual taxpayers through ‘digital tax accounts’. This should help people complete their tax returns, enable people to see their overall tax position and make dealing with HMRC easier. These digital accounts’ are online, can be used 24/7 and avoid potential delays in getting through to the right person on the phone.
Is it going ahead?
Because of the timing of the General Election in June, the 2017 Finance Act omitted legislation that was likely to need further debate, so it could be nodded through Parliament quickly before the pre-election recess. For this reason MTD was dropped, so we don’t know exactly what the rules will be or when they are to apply. Taking the big picture into account, however, it’s likely to be more of a question of when, not if.
What do I need to do?
You need to make sure that you will be able to comply with your obligations under MTD – a key element of which is being able to send HMRC a ‘packet’ of data. This is not the same as entering numbers into fields on an HMRC website, as is the current process for completing VAT returns online.
Our advice is to look at this immediately as you might need to update or change your accounting software. If so, it’s best to implement this at the end of your normal accounting period so that you avoid having records on two systems for the same period, as this invariably creates difficulties and additional costs.
New generation software packages really do make keeping your business records a lot easier, saving you time and allowing you to concentrate on the important things in your business. For example, links to your online bank account mean that the system can tell when your invoices have been paid, and scanning invoices automatically includes them in the accounts.
The way the software presents your financial information is so vastly improved that many business owners find they feel much more in control of their day-to-day finances – sometimes for the first time ever! Modern cloud-based accounting systems are simple to use so that financial information can be accessed and understood by those who need it. Your business finances no longer need to be restricted to the finance team and complicated ‘accountant speak’ reports are thing of the past.
Making the change
MTD may end up forcing some people to change their accounting software. But it would be a shame if the absence of a definite implementation date means that some people now miss the opportunity to look at the new generation of cloud accounting packages.
At Shipleys we are big fans of online accounting and have partnered with software provider Xero. There’s more information on our cloud accounting webpage. Please speak to your usual contact to find out how it could help you, or if you are interested in seeing a demonstration.
Specific advice should be obtained before taking action, or refraining from taking action, in relation to the above. If you would like advice or further information, please speak to your usual Shipleys contact.