Business First Summer 2017 Business First Magazine Summer 2017 | Page 17

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 …

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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 one 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 .
MOREINFORMATION
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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