Making Tax Digital
MTD – what you need to know.
The reason for it
HMRC is making the most significant changes to the UK tax system since the introduction of self-assessment in 1996.
Making Tax Digital (MTD) will ultimately require all businesses and individuals who submit tax returns to submit quarterly accounting records and returns, not just annually. Furthermore, these accounting records will need to be made digitally, i.e. using online accounting software which has been approved by HMRC to be compatible with their systems.
The aim of MTD is to modernise the current UK tax system, but also to reduce the amount of incorrect tax submissions which are made. HMRC want to see “businesses get their tax right the first time”. An estimated £9 billion is lost annually in tax due to errors and mistakes on tax returns. By moving to a digital format for keeping accounting records and submitting tax and VAT returns, HMRC are hoping to drastically reduce this figure.
Who it affects and when
MTD is being phased in gradually. Initially, only businesses who are VAT registered with a turnover above the VAT threshold (currently £85,000), will need to comply with the new rules. This change will take effect for these businesses from April 2019 and is referred to as Making Tax Digital for VAT (MTDfV). Further details about MTDfV and what is required can be found in our factsheet here.
HMRC announced that as well as VAT registered businesses, the self-employed, property landlords and companies paying corporation tax will also fall into this new tax regime. The deadlines for these other groups to move across to MTD are currently under review, having being put on hold while the Brexit transition starts from 2019.
How could MTD help your business?
Whilst this latest initiative from HMRC looks like another raft of legislation which creates more work for businesses, there are positive outcomes that can be achieved.
For many businesses, the only financial information they produce themselves or through their accountant, is the annual accounts. Depending on how soon their financial records are submitted this could mean receiving their accounts anywhere from between 2 – 10 months after the year-end. This information is then largely useless when it comes to making timely and informed decisions about the performance of their business.
By producing quarterly accounting information (as part of the process for submitting your quarterly digital returns), business owners will have a far better handle on how their business is doing. As a result they will be able to take appropriate action on how to improve the performance of their business or look at ways of being more tax efficient in the current financial year.
How Wilkinson and Partners can help
The move to MTD and the ‘digitisation of your accounts’ can sound very complex and confusing, but don’t worry we can help you. Whether you’re already using online accounting packages or if you are still producing paper receipts for your bookkeeper or accountant to process, we can help make this process as seamless as possible for you.
We are authorised partners of two of the main HMRC compatible software houses, Xero and Kashflow and are already working with clients to move them across to whichever software package is the most appropriate for them to use. We can also support other cloud accounting or online packages including QuickBooks, Sage One and FreeAgent.
As well as setting you up on the relevant software package, we can provide initial and ongoing training to you and your staff. We will make sure that you fully understand how to process your accounting information on the software, extract information as and when required and submit your quarterly accounts information and tax and VAT returns to HMRC using the digital links.
If you do not have the time or the know-how to do your own bookkeeping, we can undertake this task for you on a monthly or quarterly basis.
For VAT registered businesses with an annual turnover of £85,000 or more, you need to be making preparations to become digitised now, so that you will be compliant when the new MTDfV rules come into force in April 2019.
For all other businesses, landlords and individuals, Wilkinson and Partners is keeping a close eye on further announcements from HMRC. Keep referring back to our website to find out if the latest MTD deadlines have been announced which will affect you and what you need to do about it.