If you are a business owner, you should be aware of the huge changes coming to the tax system.
HMRC are aiming for a completely digital tax system by 2020, with the first businesses having to comply with MTD legislation from April 2018.
Find out more about what digital tax is, who it affects and how you can ensure you are prepared for the change.
Will I Be Affected By Making Tax Digital?
- Are you a landlord?
- Are you self- employed with turnover in excess of the VAT threshold?
- Is your trading year end 5th April?
If you answered yes to any of these questions, then you could be one of the first businesses that has to comply with the new Making Tax Digital legislation from April 2018.
What is Making Tax Digital?
Originally announced in the spring 2015 Budget, the aim of HMRC’s Making Tax Digital initiative is to modernise the UK tax system through the enhanced use of digital data – making it the most efficient tax authority in the world by 2020.
HMRC expect unincorporated entities with businesses and/or rental income in excess of a certain limit to file quarterly updates and the annual declaration online, using third party software. Day-to-day record keeping will need to be maintained digitally by all businesses from their MTD staging date.
MTD records will link to individual personal tax accounts and prepopulate data held by HMRC for individuals each quarter.
HMRC are investing £1.3billion to modernise their software and hardware to drive the change through, they will also spend more time reviewing compliance of taxpayers from the information submitted digitally.
How Will Making Tax Digital Work?
The first businesses will report online from April 2018 and all businesses will be reporting digitally by April 2020. You can view the current plans are set out in by HMRC here.
In order to assess when a business is due to start reporting digitally requires some work, particularly where there is more than one business or rental income stream and one may be VAT registered.
At First Call Financials, we provide information to existing clients from our software tool that estimates when they should begin digital reporting, allowing them to adequately plan ahead for the changes.
Businesses will report quarterly with a year-end declaration. At this point, accounts are finalised with HMRC for tax purposes and will have the accounting and tax adjustments similar to those in the current annual tax return. HMRC have a right of enquiry on these accounts once the year end declaration is filed.
Can I Do It Myself?
Yes, you can, however you will need to know when you must start reporting, be registered for MTD and also have third party software to upload the data. This may be a challenge for those who have previously maintained all their records manually and only reported once a year on their tax return.
At First Call, we will use accounting software that will have the ability to upload data for clients quarterly on their behalf.
What Data Do I Need To Upload For MTD?
Quarterly – Minimum 3-line reporting.
End of year – More detailed reporting with tax and accounting adjustments – replacing the annual tax return.
Is There a Deadline For Each Quarter?
Quarterly reports – One calendar month after the quarter end.
End of year – The earlier of 10 months after the end of trading period or 31st January of the tax year in which the trading period ends.
Is Anyone Exempt From Digital Reporting?
HMRC have confirmed there will be certain entities that are exempt from digital reporting:
- Community Amateur Sports Clubs
- Digitally excluded according to HMRC rules
What Happens If I Miss The Quarterly Return Or End Of Year Declaration Deadline?
HMRC will be operating a penalty system which is currently capped at £3,000. This penalty system will be based on compliance reviews of each clients for meeting each deadline, following the general principles of the HMRC penalty system for non-compliance on other tax reporting deadlines.
Will I Still Need To Do A Tax Return?
Once a business has started reporting digitally, the old tax return will no longer be required, however, for a small number of businesses both digital reporting and the old style tax return may be required in the transition period of the first year.
How Can We Help?
Here at First Call, we will be assessing existing clients over the next few months and providing a bespoke factsheet of what clients need to do to prepare for MTD. Additionally, we are able to provide agent services to those clients who wish for us to report to HMRC digitally on their behalf.
We can also give tax advice on streamlining their business to ensure reporting is as easy as possible in the transition to the new dawn of HMRC reporting.
If you are feeling unprepared for MTD, or don’t know if it affects you, give us a call on 0117 379 0810 for a free 30-minute consultation with one of our expert team to discuss your individual requirements.