44 | NOVEMBER 2019
Business
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SMALLER BUSINESS
THE NUCLEAR EXPLOSION OF MTD FOR PROFIT AND LOSS
If you thought MTD for VAT was bad just wait for MTD for profit and loss.
Benjamin Dyer of Powered Now looks at what is coming next from HMRC.
The big picture
Before diving into what will
be the next stage of Making Tax
Digital (MTD), it’s worth looking
at the overall picture of the
programme.
MTD is a massive years-long
programme to make all things
related to tax move into the digi-
tal age. This should eventually
result in many improvements.
For instance, at the moment
if you do a personal tax re-
turn, you tell HMRC how much
interest you have received
on savings. But a lot of this
information is actually supplied
direct to HMRC by banks, build-
ing societies and other financial
institutions. Similarly, you have
to provide details of income
despite the fact that much of
it is already known under the
PAYE scheme. This is crazy, you
have to dig out the information,
HMRC then check it against
their records and if there is
a discrepancy HMRC need to
investigate.
It would be much better for
HMRC to put all of this into
your tax return in the first place.
Then the individual only has
to add the information that
HMRC don’t know about. It’s an
example of what MTD is trying
to achieve.
A variety of reasons have been
given by HMRC for the MTD
project, but my guess that these
include:
• To collect tax that is currently
being dodged
• To reduce cost within HMRC
• To make life easier and more
efficient for businesses and
individual tax payers
So, unless you’re a tax dodger,
there are some laudable aims for
MTD. But there is a mountain
range to be climbed before this
promised land can be attained.
Other countries
Since a number of countries
have similar programs to MTD,
and several are years ahead, the
programme should be possible.
What areas of taxation
will MTD impact? What is MTD for
profit and loss?
MTD is planned to address
every area of taxation for both
individuals and companies. MTD
for VAT is already rolling out,
with the compulsory period for
returns starting on 1st April 2019.
MTD for profit and loss (covering
corporation tax and sole trader in-
come tax) is the next big business
change. MTD for profit and loss, also
known as MTD for corpora-
tion tax or income tax (for sole
traders), will require every single
business with sales of more than
£10,000 per annum to submit
quarterly profit and loss returns
electronically.
This means that everyone that is
actually making a living from their
business will fall under the new
rules. It embraces every little cot-
tage industry. While MTD for VAT
hit over a million businesses, MTD
for profit and loss will impact
several million.
It is likely to lead to an explo-
sion in the use of computers and
the need for a vast amount of
support. After all, VAT registered
businesses with minimum sales
over £85k can afford an account-
ant. Most of these smaller busi-
nesses impacted by MTD for profit
and loss can’t.
Unknown to most, there is
already a pilot program of MTD
Will MTD be abandoned?
The chances of MTD being
abandoned are extremely slim.
During my lifetime, the march of
computers has seemed inevitable.
Slowly but surely, computers have
become a critical part of every
aspect of life. Few people want
to go back to the quill and pen,
maybe backed up by abacuses and
hand operated calculators. MTD is
pushing both businesses and indi-
viduals to keep computer records
but also to communicate digitally
with HMRC. It seems unlikely that
it will ever be rolled back.
for profit and loss even though it
won’t become compulsory for at
least a couple of years.
Things may change, but the way
the pilot works is:
• For each quarter, software will
be used to send an expens-
es and income summary to
HMRC
• As a result, an estimate of the
tax due can be seen at any
time
• After the end of the account-
ing year, there is a final
submission of expenses and
income, including any adjust-
ments
• Personal income or business
allowances or reliefs must be
submitted. This can happen at
any time during the tax year
• Finally, the tax calculation for
the year can be viewed
What is the impact
likely to be?
The impact is likely to be a lot
of complaining, followed by the
widespread adoption of comput-