The Steps to Making Tax Digital a Reality


To read the latest on the delay to Making Tax Digital (July 2017) please click here.

The Government's vision for overhauling the tax system in the UK was announced in the Budget in 2015.  On 31 January 2017, the Government confirmed the finer details of their strategy as to how exactly  Making Tax Digital will become a reality for businesses and individuals.

The first roll out will come into effect in April 2018, just over 12 months away, with the exception of complex  businesses, whose consultation outcome will be announced later in Spring 2017.  See the timeline below for further information.

After entering into consultations with stakeholders, concerns arose about the pace of HMRCs changes, the cost to business of adopting the new system, and whether the very smallest businesses were equipped to make that change being just a few of the areas of concern.

Indeed, one of the areas that is still under consideration by the government is threshold exemption, which initially was set at £10,000, with a decision expected to be made before the legislation is laid out later this year (widely rumoured to be in July 2017). The government is also giving consideration to how it can support the group just above the threshold, (whatever that ultimately will be), to give them more time to prepare for the changes.

We have summarised below what we know.  You may also wish to read our Making Tax Digital article here.

Cash Basis:
First, the thresholds to enter the cash basis for small businesses will be extended to £150,000 from April 2017.

Second, incorporated property businesses previously unable to use the cash basis will be able to do so if they have receipts of less that £150,000 a year.

Businesses eligible for three-line accounts will be able to submit a quarterly update with only three lines of data – income, expenses and profit.

Spreadsheets:
The Treasury Select Committee in their assessment of the MTD scheme requested that spreadsheets be kept within the MTD scheme to support small businesses, meaning that businesses will be able to continue using spreadsheets for record keeping, but will have to ensure that the spreadsheet meets the requirements for Making Tax Digital and it is anticipated that this will be in conjunction with specialist accountancy software.

Testing:
The Revenue will be rolling out a beta testing programme ahead of the initial MTD rollout in April 2018.  This will be phased incrementally from April of this year with the Revenue turning up the dial once they’re confident that accountancy products are user-friendly, are compatible with the government systems and that individuals, businesses and those who represent them are ready.

So how much will MTD-capable software cost?
During the consultation process HMRC have been working with 18 different software companies to test and develop compatible packages. There are variances as to when these products will become available with just over a third having their products available from April 2017, ultimately most software companies will offer a mixture of free (most suitable for straightforward businesses, under the VAT threshold with no employees) and paid for software, with prices varying according to complexity of business requirements.  It is still unclear as to whether free software will be suitable for partnerships.  MTD enabled software will keep records digitally, categorise expenses, summarise records and issue prompts to users in line with HMRC deadlines.  HMRC can then assess tax liability throughout the year.

Penalties:
There will be a 12-month soft landing to allow businesses to become familiar with the changes before any penalties for late submission will be applied. HMRC will consult again in the Spring on the penalty model.

Timeline:

January - June 2017 July - December 2017 January - June 2018 July - December
2018
  • Testing starts for digital reporting of income from lettings
  • New online billing system begins
  • Taxpayers able to report additional sources of income through their digital tax account
  • Digital Tax accounts show taxpayers an overview of their tax liabilities in one place
  • Automatic tax code adjustments prevent PAYE under and over payments
  • Interest paid by banks and building societies starts to be shown in digital tax accounts

 

  • Most businesses, self employed and landlords start updating HMRC quarterly for income tax and National Insurance obligations through their accounting software
  • Taxpayers who currently report their Child Benefit to HMRC no longer need to do so
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  • Capital Gains Tax on the disposal of residential properties needs to be paid within 30 days
  • Most businesses, self-employed and landlords start updating HMRC quarterly for VAT obligations through their accounting software
  • The full range of HMRC services are available through digital tax accounts
  • Capital Gains Tax on the disposal of residential properties needs to be paid within 30 days

For more information contact:

 Seize The Day Cover

In the meantime, Mitchell Charlesworth can help you choose what level of accounting software your business needs and help ensure the chosen product reaches its true potential.  Mitchell Charlesworth recommends Xero, as it allows you and your finance team to access your financial data from a laptop, tablet or phone – wherever you are doing business.  As your accountant, our team of qualified and trained users can access your account, provide training, give advice and help you set up in Xero.

The software can provide regular reports to measure performance and manage credit control as well as producing VAT returns for you and generate professional looking sales invoices which will reduce the administrative burden.

For further information please complete our quick enquiry form  or contact Cara Bartlett.

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