Making Tax Digital

Summary

HMRC are pushing ahead with their plans to digitalise the tax system. Almost all businesses will not be able to escape the consequences

  • Business are going to have to send quarterly updates to HMRC
  • Updates will only have a 1 month deadline
  • First implementation orignally planned for April 2018 are pushed back to April 2019
  • Limited exemptions available

HMRC plan to revolutionise the tax system with your digital tax account showing your liabilities in a single place. This is accompanied by ‘Voluntary Pay As You Go’ for income taxes.

These imminent changes will cause a huge surge in all businesses trying to ensure their accounting systems are adequate able to facilitate the required submission of both income and expenditure details to HMRC. We anticipate this will lead to an even higher uptake of Cloud Accounting packages. For details of how Cloud Accounting has been benefitting our clients follow the link – Cloud Accounting Speak to one of our partners or a member of our Managed Services team today and see how we can help transition you away from desktop accounting systems.

Background

At Clive Owen LLP we have been talking to our clients for months about HMRC’s plans to revolutionise the tax system with the Digital Tax Account and Making Tax Digital for Business (MTDfB). We believe these plans will have a huge impact on many of our clients and we will be on hand to assist you. The biggest impact is for those with inadequate systems to keep their records up to date and those who do not keep records in a digital format, therfore, now is the time to review those systems and see how they can be updated to your advantage as well as to meet the needs of MTD.

What does MTDfB mean?

Businesses will be required to keep their records electronically and submit quarterly income and expenditure reports to HMRC. This will require up to date accounting software to facilitate the process, as well as up to date management accounts to ensure the information is accurate.

The proposed deadline for submission of these numbers to HMRC is 1 month after the end of the period. Do note that this is shorter than the current VAT return deadline of one month and seven days. The VAT deadline may also be subject to future change so that the return has to be submitted within 1 month and the additional days are only for payment. You will need to ensure that you are collecting and recording costs quickly and efficiently so that profits are not overstated or understated on submission to HMRC. We use app’s such as Receipt Bank to facilitate this with Cloud Accounting packages like QuickBooks Online and Xero. We have in house bookkeepers and management accountants who can keep your records for you, alternatively we can train your staff.

End of year activity will need to be concluded for businesses by the earlier of 10 months after the last day of the period of account or 31 January of the year of assessment in which the profits for that period of account are chargeable to income tax. For corporate businesses, this could mean an acceleration of the deadline for filing the corporation tax returns in line with the statutory accounts.

Individuals and businesses will have a clearer view of their current tax liabilities position through their digital tax account. HMRC will also have that same view. HMRC will also be able to apply a much more targeted approach to inspections and issuing of penalties. Therefore the need for accuracy and staying up to date with record keeping is vitally important.

Who does MTDfB affect and when?

This will affect all businesses in some way or another, creating a huge rush of systems reviews and renewals in the run up to the proposed deadlines. Whilst HMRC have now stated that no businesses will be fully MTD mandated before 2019, they stated that from April 2019 businesses above the VAT threshold will be mandated to keep their reecords digitally and provide quarterly updates to HMRC fro their VAT. In real terms, this still means that businesses will require up to date software to guarantee the link from systems to HMRC.

The orignal deadlines were:

  • April 2018 – Unincorporated Business and Landlords with turnover over £10k or gross annual property income of over £10k
  • April 2019 – Likely all VAT registered businesses
  • 2020 – All businesses with income tax, National Insurance, VAT or corporation tax obligations will be within the scope of the requirements subject to the available exemptions

Digital record keeping and what will be submitted

The proposed data fields/breakdown of the information submitted to HMRC are in line with those currently submitted on your tax return. Further breakdown (which we would recommend for management accounts purposes) will be optional and won’t have to be submitted to HMRC. Our Managed Services (COMS) team regularly review systems and processes to establish efficient means of obtaining meaning Management Information (MI) for business owners and operators. This will also ensure that records submitted to HMRC will be up to date and accurate. COMS also prepare VAT returns and MI monthly or quarterly for their clients, with Cloud Accounting.

Excel may be allowable as a digital record keeping tool, however, this will only be the case if it is integrated with another add on capable of submitting the data correctly to HMRC. Simple and easy to use Cloud Accounting tools are the alternative solution to outdated spreadsheets and our experience is that these are picked up very quickly by clients.

Businesses will still be able to make accounting adjustments; the time scale for doing these will be no later than when a business must finalise its end of year activity. If you haven’t ever considered if your accounting system is adequate for your needs, now is the time to do it and we have specialists in this area.

What exemptions will be available?

Exemptions are not going to be easy for most businesses to obtain. The likely exemption list is going to be:

  • Unincorporated businesses with less than £10k turnover
  • Landlords will gross annual income from property of less than £10k
  • Charities (although trading subsidiaries would be within MTDfB obligations)
  • Community Amateur Sports Clubs (CASCs)
  • Those who cannot submit due to the basis of being ‘digitally excluded’
  • Exempt Unauthorised Unit Trusts
  • Property Income Distributions to Individual Shareholders
  • Real Estate Investment Trusts (REIT)
  • Property Authorised Investment Funds (PAIFs)

The above remain to be confirmed. It may also be the case that many exemptions will need to be applied for, as opposed to being automatic. 

Voluntary Pay As You Go (PAYG)

The government proposes that a new system of Voluntary Pay as You Go will be implemented under MTD. The intention is to create an online facility to make reclaiming repayments and paying your taxes a simple process. Industry have highlighted issues surrounding security and the methods of allocating payments and allocations of credits and allowances which are all still to be addressed in the detail. The PAYG system of allocation is likely to be a rule based one, making the timing of payments of liabilities and data submissions to HMRC a crucial part of your business cycle, cashflow and tax planning.

What does Making Tax Digital actually mean for businesses?

The final format for how information is submitted to HMRC is still yet to be determined for the majority of SME businesses. We anticipate that this will look similar to the submission of your VAT return, albeit more complex. 

Your accounting system will become more important than ever as it will most likely be your means of submission. This will no doubt mean that you will have to be on the latest version of your product to ensure the functionality is switched on. For most software suppliers this means a subscription basis rather than one off fee. As a firm, we look at each business individually but for the majority of SME business we anticipate large migrations away from desktop products to Cloud Accounting Systems which are always the latest version due to their hosted nature.

There are proposals that for some small businesses up to the VAT threshold (currently £83,000) there will be free software made available for the submission of income and expenses to HMRC. In addition, some funding may be available for digital training, although the form and amount may be impractical and small.

For those small businesses who operate the Construction Industry Scheme (CIS), initially you may find that you have additional work to do to ensure your CIS submissions are accurate across MTDfB, your CIS return as well as your data submitted with payroll under RTI (Real Time Information).

 

 
Areas we can help you?
Managed Services

Cloud Accounting

Independent MI Review

Payroll

Auto Enrolment

Finance Officer Services

MI & F Reporting

At Clive Owen LLP we recognise the value and importance of Auto Enrolment and we have the expertise, experience and the professional staff to assist you.

 

 

 
 

Kevin Shotton


Partner



01325 349 700


 
 

Ian Jarvis


Director



01325 349 700