42 | SEPTEMBER 2019
Business
Read online at www.proinstaller.co.uk
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 look-
ing at the overall picture of the
programme.
MTD is a massive years-long
programme to make all things re-
lated to tax move into the digital
age. This should eventually result
in many improvements.
For instance, at the moment if
you do a personal tax return, 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, building 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?
MTD is planned to address every
area of taxation for both individu-
als and companies. MTD for VAT is
already rolling out, with the com-
pulsory period for returns starting
on 1st April 2019. MTD for profit
and loss (covering corporation tax
and sole trader income tax) is the
next big business change.
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.
What is MTD for
profit and loss?
MTD for profit and loss, also
known as MTD for corporation 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 electroni-
cally.
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
for profit and loss even though it
won’t become compulsory for at
least a couple of years.
it embraces every
‘ little
cottage
industry ’
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