If you are aware of Making Tax Digital (MTD), then you will know that it is part of the Government’s strategy to make-over the UK tax system.
It wants to establish a more efficient, effective and user-friendly system that makes it easier for businesses, self-employed individuals and landlords to stay on top of their affairs and get their tax right.
However, in the days, weeks and months that have passed since its inception, HMRC has not always been forthcoming with clarity on some of the hazier aspects of the regime.
Consequently, several rumours seem to have wormed their way into the discourse surrounding MTD. We’re concerned about this and we don’t want anything to prevent businesses from preparing for the changes.
So, we want to debunk some of the misconceptions about Making Tax Digital and help you sort fact from fiction…
Making Tax Digital has been postponed…
Whilst HMRC has made some noteworthy changes to the timetable, its underlying intentions remain the same and MTD will go ahead. After businesses and industry professionals expressed concern about the scope and implementation of the regime, the Government announced the following:
• From April 2019 – only businesses registered for VAT, whose turnover exceeds £85,000, will need to keep digital records and only for VAT purposes.
• From April 2020 – businesses will not need to maintain digital records or update HMRC quarterly for other taxes until April 2020 at the earliest.**
**A ministerial statement released on 13 July 2017 reported that ‘The Government will not widen the scope of MTD beyond VAT before the system has been shown to work well, and not before April 2020 at the earliest.’ We do not know how far in advance of the implementation date a verdict on this would be reached and, considering ongoing political uncertainty, there is some doubt as to whether 2020 is realistic.
I can’t use my spreadsheets anymore…
HMRC has said that most businesses can continue to use spreadsheets, but for record keeping only. When making quarterly submissions, spreadsheets must be combined with compatible software. This software must be able to connect to HMRC systems via an Application Programming Interface (API). HMRC expects the market to provide bridging products, but we have yet to see how this will work in reality.
The fact that spreadsheets remain an acceptable means of keeping records has been a welcome decision for many businesses who rely heavily upon them day-to-day.
Bridging software will come at a cost though and, given that spreadsheets are more susceptible to error, they are not a perfect solution. It may, therefore, be wise to consider switching to software sooner rather than later.
Under Making Tax Digital, I’ll need to submit quarterly tax returns and make quarterly tax payments…
Fuelled by the media, many businesses are concerned that they will be required to submit a “quarterly tax return”. This is not the case.
Reporting your business’s financial data to HMRC quarterly will replace the annual tax return but is not likely to be the same process, particularly if you do not currently use accounting software.
As for the rumour that quarterly updates will need to be accompanied by quarterly tax payments, this is also incorrect. There are no current plans to alter payment dates for VAT, corporation tax or income tax.
HMRC did consult on a voluntary pay-as-you-go process in 2016 but this has not been taken any further.
HMRC will have access to all my financial data…
The quarterly collection and processing of data is intended to give taxpayers a clearer idea of what their tax bill will be and an accurate overview of their tax position throughout the year.
The belief that HMRC will have access to all your financial data is incorrect. The information that you will be required to submit to HMRC is the same information that you submit now. The requirement to record each individual transaction digitally is separate from the requirement to submit information to HMRC. The submission requirement is for totals only.
There may, in time, be an option for businesses to voluntarily submit additional information to HMRC and some may choose to do this to speed up repayments or to avoid any further probing from HMRC.
I can opt out of MTD…
Making Tax Digital is not a voluntary regime that businesses or individuals can choose to opt in or out of. If your business meets the criteria set out in the MTD legislation, you will need to be fully compliant at the appropriate implementation date.
How can my accountant help?
We can help you when it comes to choosing and implementing a system matched to your businesses requirements. We can provide professional advice throughout the transition and beyond, plus we support a range of online accounting software packages. So, when it comes time to take the leap, we have trained advisers on hand to provide as much or as little assistance as you require.
To speak to one of our experts about Making Tax Digital and what it means for your business, click here.