Are you ready to submit your accounts every 3 months to HMRC? Are you ready for Making Tax Digital?
Making Tax Digital (MTD) is a fundamental shift in the UK tax administration and the changes that will affect both taxpayers and accountants should not be underestimated.
So what is Making Tax Digital?
HMRC is bringing in legislation that will require all taxpayers to have a digital account which it believes will reduce errors and mistakes in accounting, in turn leading to increased tax collection. This means that the taxpayer will have to submit its accounts in digital form to HMRC on a quarterly basis as opposed to annually at the moment.
At present HMRC has not finalised the legislation so specifically how this will be rolled out is still unclear but what is apparent is that this change represents a huge shift in how people will need to keep their business records and how frequently they will need to update their bookkeeping.
Who’s going to be affected by Making Tax Digital?
Well, in short, everyone. The legislation is being rolled out in phases so at present the timetable is as follows:
- April 2018: businesses with turnover exceeding the VAT registration threshold, when reporting income and expenditure subject to income tax and Class 4 NIC (e.g. sole traders)
- April 2019: business with turnover exceeding £10,000 to report income and expenditure subject to income tax and Class 4 NIC (this includes landlords)
- April 2019 – All VAT registered businesses to report income and expenditure subject to VAT
- April 2020 – businesses which pay corporation tax to report and all partnerships with turnover of £10 million or more.
What software do I need to use?
Taxpayers and their accountants will only be able to submit their information to HMRC using software which has been designed specifically to link in with HMRC’s systems. At present a significant number of people submit their tax information using an online form; however HMRC has ruled that out as a valid method of submission for Making Tax Digital. This means that businesses need to move their accounts online to ensure they can comply with the legislation.
Whilst HMRC will not make available free software to enable taxpayers to make submissions, they have encouraged software providers to make available free versions of their programmes to help small businesses.
A number of the Cloud Accounting software packages e.g. Xero, Quick Books etc have the capability to file information directly with HMRC already so if you are considering moving your bookkeeping online then using one of these packages should ensure you comply with Making Tax Digital when it arrives.