If you are in business you may not be aware, but from 2018 most businesses, the self-employed and landlords will need to use specialist software or apps to record and categorise receipts and expenses and to update HMRC quarterly with their figures.
As things currently stand, under the Making Tax Digital proposals or MTD as its known for short, unincorporated businesses and landlords with gross income below £10,000 will be exempt from the new reporting obligations. There will also be some exemptions for certain groups, for example, those with certain religious objections, and those for whom online filing is not practical for reasons of disability, age or remoteness of location. But the majority of businesses will be bound by the new rules.
Businesses will be prompted to send a summary of quarterly transactions to HMRC when it is due and will be able to do this directly from the software or app. This will consist of summary totals of income and expenses, and not detailed transaction records.
2 million businesses are already submitting VAT returns on a monthly or quarterly basis so the record keeping and submission to HMRC should not really involve any extra work for these businesses. Indeed it should be possible to submit the data that HMRC need both for the VAT return and MTD with the same click of the button. But for many businesses this will involve extra investment in IT and will represent a considerable extra amount of work for which they may need the assistance of a bookkeeper or accountant.
Once submitted HMRC systems will then calculate your projected tax and national insurance liabilities and you will immediately be able to see how much money you should set aside for tax. According to HMRC the big benefit of MTD for taxpayers is that they will be able to budget for tax liabilities much earlier and much more easily than they can currently.
At some point after the submission of the last quarters’ figures, the taxpayer will be required to submit an end of year declaration. This is where a business is most likely to need the assistance of a Chartered accountant to review the data, determine which costs are not allowable for tax and which extra costs can be claimed against tax.
HMRC are currently considering what a suitable period of time after the end of the year should be. No final decision has yet been made but 9 months currently seems to be the favoured option.
Finally, it has been suggested that there should be some financial support to help some businesses to make the transition to MTD, in terms of the costs of hardware, software and implementation but as yet no details have been released as to how this support might be calculated or granted.
MTD is only a year way and I think that businesses should be speaking to their accountants about which software or apps they should be using for their business in readiness for the new rules
We will be continually monitoring the consultation process and update you as matters arise. But in the meantime, please do feel free to contact myself of one of my colleagues if you have any questions.
