You might have heard about “Making Tax Digital” (MTD), HMRC’s plan for getting most businesses and many individuals to make returns of income and expenses to them on a quarterly basis, using digital software which HMRC will not provide. The plans are still under discussion, but with HMRC’s announcement that they’d like to see MTD start in April 2017, it’s clear that they mean business, even if the detail is not yet clear. Many returns are already filed digitally and we’ve been using digital software for many years to file individual and company tax returns, but this is a push even further. The Treasury is clear on what they want to achieve:
The vision……is about much more than simply adding digital tools to the current system: it is about transforming the UK tax system into something that feels completely different. HMRC will collect and process information affecting tax in as close to real time as possible, stopping tax due or repayments owed from building up. Individual and business taxpayers will no longer have to wait until the end of each tax year before knowing how much tax they should pay, avoiding any surprises and helping them to plan their financial affairs with more certainty. And taxpayers will be presented with a complete financial picture of their tax affairs in their digital account, able to see and manage all of their liabilities and entitlements together for the first time.
The expectation is that under MTD most businesses, large or small, VAT registered or not, will submit quarterly returns to HMRC within a month of the quarter end with an annual return thrown in as well. If returns are late by more than a month then there will be a system of penalty points, leading to the inevitable fines. HMRC want every business to use software to record income and expenses by loading the data manually or by scanning receipts and then every quarter submitting a summary of that information to HMRC.
HMRC isn’t proposing (yet) that tax will be payable differently from the current regime, though it suggests that it will enable taxpayers to calculate their tax as they go along and that they might wish to pay as they go too.
It is envisioned that MTD will be introduced in phases: April 2018 for income tax and National Insurance obligations, April 2019 for VAT obligations and April 2020 for corporation tax obligations. If past performance is anything to go by, we think it’s unlikely that HMRC will meet their own deadlines, but not being ready has not deterred HMRC from making changes before.
At the moment, it’s thought that businesses with turnover under £10,000 will not have to file under MTD (that limit may change). Certain other businesses will also be exempt, including those who lack an internet connection, those unwilling to file electronically on religious grounds and possibly ‘older’ taxpayers, (it’s hard to know whether to be offended by that until the reasons for the exclusion are given!)
It’s hard to see that MTD has any advantage to a business owner at all, other than maybe ensuring that it’s harder to fall behind with keeping your accounting records. HMRC have promised that MTD will go hand in hand with tax simplification, but the examples they’ve given of where things might be simplified are hardly sparkling.
MTD will surely bring advantages for HMRC, not least that it will help them target individuals and businesses who they consider might benefit from a tax enquiry. With all the extra detail available to them, it’ll be much easier for them to target companies effectively, though surely any business owner currently fraudulently supressing income will still be able to do so.
At HullJady, we’ll continue to do our best to ensure that clients use the best digital accounting software to ensure they run their accounting records in a way that gives them the advantage of having access to great financial information about their business and their current position. That should be the driver behind any change in the way business owners keep their accounting records, not the need to comply with the latest HMRC change. We hope that we’ll be able to help all businesses already keeping effective books to make the transition to the MTD regime, however it eventually looks, as seamless as possible.
MTD, whatever it eventually looks like, will mean real change for businesses with no digital accounting records. We’re here to help anyone who wants to move to using digital software or to chat about the options.
Clare Jady – 30th November 2016