Since the Making Tax Digital (MTD) consultation response came out in January, HMRC has provided very little in the way of additional clarity or information. Inevitably, this has led to rumours about the initiative spreading thick and fast. So here are 5 of the key Myths about Making Tax Digital with our take on them, separating fact from fiction.
Myth 1. Making Tax Digital has been postponed
Making Tax Digital, along with another 71 clauses, was taken out of the Finance Bill in April as a result of the Election. There simply wasn’t enough time to put this into the legislation. However at present we have not had any indication that the original timescale has been delayed. With the pilot of the initiative well underway and many of the UK’s top tech companies, including Quickbopoks, Xero and Sage, continuing to work closely with HMRC to flesh out the plan, we’re assuming that the government is sticking to the roadmap so that we can make sure small businesses have enough time to get ready. So don’t put off the opportunity to review your processes. Make sure you are using software which is compliant now, so that when it does come in, you will find the whole process a breeze! The current timetable is:
July – December 2017
Digital tax accounts show taxpayers an overview of their liabilities in one place.
Businesses, self-employed people and landlords with turnover above the VAT registration threshold start updating HMRC quarterly for Income Tax and National Insurance obligations through
Businesses with a turnover between the minimum threshold of £10,000 and the VAT threshold start updating HMRC quarterly for Income Tax and National Insurance obligations through their
MTD starts for VAT figures and returns.
Most businesses can start updating HMRC quarterly for Corporation Tax obligations through their accounting software.
The full range of HMRC services is available through digital tax accounts.
With the next Finance Bill due in the autumn, we could still see MTD set in legislation by the end of the year. Watch this space!
Myth 2. Under MTD I’ll have to submit quarterly tax returns
The press have called MTD a “quarterly tax return” but that’s not really the case. Reporting your business’s financial data to HMRC throughout the year will replace the annual tax return but isn’t likely to be the same process, especially if you don’t currently use accounting software. MTD requires all businesses to use accounting software to record their daily transactions and for that software to report certain information to HMRC on a quarterly basis. Although the idea is that this will replace the tax return, many businesses will still need to make year end adjustments that they may not process in their normal monthly bookkeeping records (eg stock, depreciation etc).
Based on information from the draft MTD clause in the recent Finance Bill, here’s a rough outline of when you might have to submit those quarterly updates:
Quarter 1 (May, Jun, Jul 2018) will have a filing deadline of 31 Aug 2018
Quarter 2 (Aug, Sept, Oct 2018) will have a filing deadline of 30 Nov 2018
Quarter 3 (Nov, Dec, Jan 2018/19) will have a filing deadline of 28 Feb 2019
Quarter 4 (Feb, Mar, Apr 2019) will have a filing deadline of 31 May 2019
End of Period 2018/19 will have a filing deadline of 31 Jan 2020
The Final Declaration will have a filing deadline of 31 Jan 2021
The above deadlines show that self-employed taxpayers will eventually have to make six submissions to HMRC every year – That sounds like a lot more work, but if you talk to us about switching to using cloud accounting software such as Quickbooks Online we can show you how you will be able to make the whole process a lot quicker and easier. And if all that seems too daunting, we can work with you to offer a bookkeeping service that will satisfy your legal requirements without breaking the bank!
Myth 3. I can opt to do paper returns instead
As the government moves towards providing a modern digital experience for taxpayers, it’s unclear whether there will be any place for the humble paper tax return. In HMRC’s words: “The appetite for digital services is strong, and relying on a predominantly paper-based tax system makes no sense in the 21st century”. However HMRC have previously taken into account good reasons for not submitting data electronically such as the fact that certain areas of the country do not yet have access to the internet and some religious groups ban the use of technology, so we think there will still be a small amount of room for manouvre. You will have to have a good excuse for not going digital however and the fact that you don’t like computers is unlikely to cut it! There has been a lot of consideration given to those who may not be able to use computers however and at the moment HMRC has suggested that people who “genuinely cannot use digital tools” will be able to nominate someone to update their accounts for them or give information to HMRC by phone.
Myth 4. HMRC will provide free software that I can use
HMRC has confirmed that it will not be providing software directly. However, it “will ensure that free apps and software products are available, but many businesses and their advisers will choose to use commercially-available tax software packages”. This really means that the onus is on you to find a digital accounting solution that works for your business. With little time left before you need to start keeping digital records, it’s certainly not too early to start looking. At HFL we have partnered with Quickbooks online and Xero to make sure that our clients have access to the leading cloud accounting tools on the market and of course we will help you with any other package that you decide to use to ensure that you are compliant. Talk to us about the options available to you.
Myth 5. My spreadsheet is just as good as any digital tax software
Spreadsheets are great for some tasks, but it is difficult to see how they will satisfy the MTD legislation. If you have never given accounting software a go to compare the two methods, then now woudl be a good time to give it a trial. The new cloud accounting software is designed to be used by the business owner rather than the accountant so is much ore user friendly, and it is more easily accessible by both you and your accountant so that you always know you have support along the way. We’ve found that our clients have quickly taken to the software and love that they can be doing their bookkeeping on their phones rather than spending hours writing their records up at the end of the month, and doing your VAT Return is simply a breeze once the day to day record keeping is done.
According to MarketWatch, 88% of spreadsheets contain errors and we have regularly seen evidience of this when we come to prepare the year end accounts. With the accuracy of financial figures the cornerstone of any good business, we think you’ll wish you’d made the switch earlier once you’ve got your bearings. Why not give us a call and ask for a demonstration?
We’ve heard Making Tax Digitial referred to as “Making Tax Difficult” and it is certainly the most challenging change to the tax system that we and are clients are going to have to get to grips with in living memory. That’s why we think it is important to start preparing for it now. So if you are a Sole trader, Partnership, Landlord or a Limited Company, it’s time to start assessing what MTD will mean for you and how you are going to ensure that it is a positive transition not a stressful panic if left to the last minute.