Tait Walker - Chartered Accountants Logo

Making Tax Digital: Some questions & answers

it-digital-creative

Making Tax Digital: Some questions & answers

 

HMRC’s vision of the future is that all dealings with tax payers and agents will be digital.

The proposals for the new digital world were introduced in the March 2015 Budget. Then, in August 2016, six consultation documents were published and the closing date for responses is 7th November 2016.

It is expected that there will be more detail in the Chancellor’s Autumn Statement and also in the Budget next year.

Here is a summary of what we know so far:

What is it?

Making tax digital is a complete change to the way businesses currently report their income and expenditure to HMRC.

Under the current system, businesses prepare one set of accounts and report the information on the annual tax return, so there is one submission of information to HMRC.

Under the new system, there will be quarterly reporting of profits and then a further annual declaration making a minimum of five submissions to HMRC each year.

When does it start?

April 2018

It is possible that the smallest businesses will be able to defer until April 2019 – this is one of the topics covered in the consultation documents – but for most business and landlords the start will be April 2018.

Who will be affected?

Unincorporated businesses and landlords.

Quarterly reporting is not confined to businesses. Landlords will also be required to report quarterly if annual rents will be in excess of £10,000. This will apply even if your main source of income is a salary or a pension and the rental income is just an extra.

Limited companies will be included later – in April 2020.

What will you have to do?

Use software or apps to keep your business records and provide regular (at least quarterly) updates of information to HMRC. These updates will be a summary of income and expenditure only – each transaction will not be shown.

The proposed time limit for submission of each update is 1 month from the end of the period.

Is anyone exempt?

  • Those with turnover of under £10,000. Note that business turnover and rental income will be added together so if you have self employed earnings of £6,000 and rental income of £5,000 your total income will be £11,000 which is over the threshold and you will be required to report quarterly.
  • Charities
  • Those who “cannot engage digitally”. This means people whose religious beliefs prevent them from using electronic communications and people for whom online filing is not reasonably practical for reasons of disability or age, for example.

Do we like it?

Making Tax Digital represents a seismic shift in how businesses and landlords record their financial transactions and interact with HMRC.

Where a person wants to stick with current methods, whether paper records or spreadsheets, the new regime will create an extra layer of work. However, where taxpayers and/or their accountants embrace new ways of working, and in particular digital record keeping and cloud accounting, Making Tax Digital has the potential to bring benefits.

What do you need to do now?

Many accountants, tax practitioners and professional bodies have already responded to the consultation documents. At Tait Walker, we will certainly be making our views known. However, you don’t have to be a firm of accountants to respond – the process is open to anyone who will be affected.

The consultation closes on 7th November so if you would like to make your voice heard, please click here.

As more information becomes available, we will continue to develop our strategy for coping with the change and minimising the stress of changing to the new system for our clients (and ourselves!). We will provide you with regular updates, so watch this space.

If you would like any further advice, please contact Dorothy Johnston on 0191 285 0321 or email dorothy.johnston@taitwalker.co.uk.

Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedIn