Making Tax Digital - are we ready ?
In this article , Mark McNeill , Director , ASM Chartered Accountants discusses digital services for tax which is changing the face of accountancy …
n the March 2015 Budget the government announced major plans to modernise the tax administration system by introducing digital services for tax .
Making Tax Digital (“ MTD ”) is a key part of the government ’ s plans to make it “ easier ” for individuals and businesses to get their tax right and keep on top of their affairs . Whether MTD will make dealing with one ’ s tax affairs easier is a matter of some debate . The requirement to submit quarterly updates to HMRC and to provide an annual “ End of Year ” return , on the face of it , doesn ’ t seem like making the system easier .
Indeed when you consider the timescale for submitting the quarterly updates , taxpayers have one month to compile the information and declare that the period ’ s data is complete to the best of their knowledge , and the timescale of submitting the End of Year return , nine months after the end of a period of account ( normally a period consisting of four consecutive quarterly returns ), then it is hard to believe that preparing and submitting five returns rather than the current 1 annual return is making matters easier .
Who does MTD apply to ?
MTD initially only applies to individuals and unincorporated businesses . This includes individuals who are landlords whose annual income exceeds £ 10,000 . Originally the government had intended MTD to be rolled out to everyone captured by the above from April 2018 .
However at the Spring Budget 2017 the government announced that it would provide 3.1 million small businesses with an extra year ( until 2019 ) before they are required to keep digital records and send HMRC quarterly updates .
This concession applies to businesses and / or individuals with a turnover between the minimum threshold of £ 10,000 and the VAT registration threshold , currently £ 83,000 .
This is a welcome break for small businesses and individuals who will be required to apply MTD . Many such businesses will not be ready for the full launch of MTD in April 2018 .
It is also intended that MTD will apply to companies from April 2020 .
Despite lobbying from certain quarters and various reports suggesting that the government needs to delay the implementation of MTD until it has been fully trialled and any teething problems resolved , the government are pushing ahead with their plans to commence MTD for individuals and unincorporated businesses from next year .
So what do individuals and businesses need to do to prepare themselves for MTD ?
The rollout of MTD has actually already begun . Every small business owner and individual taxpayer now has access to a digital account that they can use to check their records and manage their details with HMRC .
In order to update their digital account with financial information , taxpayers will be required to use digital tools , such as software or apps , to keep records of income and expenses . HMRC has said that spreadsheets can be used , as long as they meet MTD ’ s technical requirements .
In order to do that however , HMRC has said that it is likely that spreadsheets will need to be combined with software in some way . The question of how this will work is to explored in further detail during 2017 .
HMRC has stated that it won ’ t provide its own software , but will ensure that basic apps and software products are available for businesses with “ the most straightforward affairs ”. Many other businesses and their accountants , however , will choose to use more comprehensive commercial software .
For those who keep manual records it will be necessary to convert these into a digital format . This sounds very sophisticated but the use of simple spreadsheets which capture relevant income and expenditure should suffice . We will know better later this year .
This information will then need uploaded into the taxpayers ’ digital account within one month of the end of each quarter .
The taxpayers ’ digital account will already be prepopulated with income and tax details that HMRC already hold , such as details of employment income , PAYE and NIC , and any state retirement pension .
From April 2018 it is intended that banks and building societies will be required to provide information to HMRC earlier and more frequently than at present .
While it will be easier to keep on top of your tax affairs by having to prepare and submit quarterly returns , there will be a significant increase in costs in doing so , especially where taxpayers engage accountants or tax advisors to look after their tax affairs for them .
The current self assessment system of submitting one annual tax return 10 months after the tax year end will be replaced by a requirement to submit four quarterly returns and a subsequent end of year return .
It is clear to see unfortunately that there will be a significant cost to taxpayers , and increased pressure on accountants and tax advisors to meet five deadlines during a year rather than one .
The rationale behind MTD is a good one . The ability to have a digital account with HMRC which deals with all the tax affairs of a business such as income tax , PAYE , NIC , and VAT is a welcome idea . We are all used to dealing with online banking and making online payments , so the move to online tax is a natural step . It is important though that taxpayers are fully prepared for what is coming and are ready to make the change to digital record keeping .
HMRC famously had an advertising campaign a few years ago where they stated “ Tax doesn ’ t have to be taxing ”. Hopefully the switch to MTD won ’ t be .
ASM Chartered Accountants has six offices , Belfast , Dublin , Dundalk , Dungannon , Magherafelt and Newry . The 150 strong team specialises in a range of accountancy disciplines including , corporate finance , Insolvency services , forensic accounting , Audit & accounting , consultancy services , internal audit , tax , hotel , tourism and leisure .
Mark McNeill can be contacted at mark . mcneill @ asmmagherafelt . co m or 028 7930 1777 to discuss your accountancy needs .
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