Making Tax Digital – Important Changes to the Way You Deal With HMRC

April 5th, 2017 by Robert Leggett - Partner

There are two main areas to Making Tax Digital; MTD for businesses, and MTD for individuals. 

MTD for Businesses (including landlords)

Under MTD, all businesses (apart from those very smallest businesses turning over less than £10,000 per annum), will in future need to keep their records “digitally”, and complete an upload of some basic profit and loss information to HMRC online, quarterly or more often.

These quarterly uploads will be based solely on the information which is contained within your accounting system.  If these records don’t make adjustments for items such as stock, accruals and prepayments, tax add-backs, capital allowances etc, then that does not matter.

There will then be a requirement to complete a further, more detailed, annual upload; this must contain all of the year end accounting and tax adjustments which are currently included in your accounts and tax returns. 

Will This Mean Paying Tax on a Quarterly Basis?

You will be able to voluntarily pay tax early in accordance with the quarterly uploads.  However, HMRC say there are no plans to make this compulsory.

When Will I Have to Join MTD for Businesses?

Your entry date depends on your turnover, and the type of business you trade as. 

The first tranche of businesses will need to adopt MTD from their next period commencing from April 2018, and includes those within the charge to income tax (including landlords) with turnover > the VAT threshold (£85,000 in 2017/18).  Partnerships and LLPs with turnover > £10m will be excluded.

Other businesses will then need to adopt MTD over the following two years.

What Sort of Accounting System Am I Going to Need?

There is much talk about utilising the modern breed of cloud based accounting systems.  These systems have the advantage of being able to be accessed from anywhere, and will be the right solution for many businesses.  However, they are not the only solution, which might also include desktop systems, free “apps”, or Excel.

MTD for Individuals

At the individual level, HMRC’s aim is that MTD will see the end of the personal tax return.  Instead, each of us will have our own “digital tax account”, which will be pre-populated with all of the information that HMRC receives from different sources.  This is likely to include data from MTD for businesses, salary, pensions, bank interest, dividends etc.

Once a year, it will be necessary to check the contents of the digital tax account, add any missing information (for instance, overseas income), and make a declaration that everything is correct.

Overall, MTD will represent a big change for many people in how we deal with HMRC and we all need to start planning early to make sure we are ready.

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