You may have heard about some major changes happening to the UK tax system – Making Tax Digital. What is it all about and how do you and your business need to prepare for it?
What is Making Tax Digital?
Making Tax Digital (MTD) is the most significant change HM Revenue & Customs (HMRC) has made to the administration of tax returns since the introduction of self-assessment in 1996.
MTD aims to digitise the UK tax system, ultimately requiring businesses and relevant individuals to submit quarterly accounting records and tax returns. These records and returns will have to be submitted online, using the appropriate accounting software.
Who will it affect?
The changes will affect businesses and individuals.
The first phase of MTD focuses on businesses who are VAT registered with a taxable turnover above the VAT threshold (currently £85,000).
Whilst the next phase is still being confirmed, this is likely to affect the self-employed, property landlords and companies paying corporation tax. Businesses and individuals falling into all the above groups will have business tax accounts created by HMRC.
As part of the MTD process, Individuals who fall outside the aforementioned groups will have personal tax accounts. Although individual taxpayers won’t have to submit tax returns, they will be able to confirm their income using the Government’s new online verification system called GOV.UK Verify. Their personal tax accounts will show details of their income based on information provided by the likes of banks and their employers.
When does Making Tax Digital take effect?
Phase one of MTD, commonly known as “MTD for VAT” (MTDfV) will take effect from April 2019.
Plans to roll out MTD to other businesses and individuals were initially forecast to start from April 2020. However, HMRC has recently announced that due to the Brexit transition, this has been put on hold until further notice.
We will update our website as soon as we hear any further details on this.
Will my business still need to produce annual accounts?
Yes. As well as making your quarterly submissions you will also have to make an end of year submission, known as the ‘fifth return’. This fifth return will have to be submitted to HMRC within 10 months of your year end. However, this should be a simpler exercise than the current process for producing annual accounts as you will have been submitting quarterly financial records throughout the year.
Companies will still have to submit their annual accounts to Companies House, in addition to their quarterly reporting to HMRC.
Will I have to use new software to make my HMRC submissions?
As part of the MTD process, businesses will need to review their current methods for submitting tax returns. The ‘Digital’ aspect of MTD means that all those affected will no longer be able to submit paper tax returns. Instead they will have to submit quarterly financial information and tax returns online.
The main accounting software providers are already working on this to make sure their systems will be compatible with HMRC’s systems. Hunter Gee Holroyd have partnered with Xero Accounting Software to enable you to manage your business finances online. Further details about Xero can be found here. However, we can also support other cloud based packages such as; Sage, QuickBooks, Kashflow, etc.
Are there any benefits of Making Tax Digital for businesses?
Lots! Whilst MTD will bring significant change to some businesses, i.e. those that are currently using manual based accounting systems and doing paper based returns to HMRC, MTD will also bring significant benefits. These include:
- Improved bookkeeping and better accuracy of your invoice and receipt processing by using easy to use cloud accounting packages.
- Producing real-time accounts, so you no longer have to wait several months after your year-end to receive, what is by then, historical information.
- Improved business decision making because you’ll have more up to date and accurate financial information about your business.
- A better understanding of what your tax liabilities will be and therefore no nasty surprises. This will also help with the implementation of tax planning activities that could minimise your future tax bills.
How can Hunter Gee Holroyd help me?
The move to MTD and the ‘digitisation of your accounts’ can sound very complex and confusing, but don’t worry we can help you. Whether you’re already using online accounting packages or if you are still producing paper receipts for your bookkeeper or accountant to process, we can help make this process as seamless as possible for you.
We are authorised partners of Xero but are happy to work with other cloud accounting software providers. We are already working with clients to move them across to whichever software package is the most appropriate for their business.
As well as setting you up on the relevant software package, we can provide initial and ongoing training on Xero to you and your team. If you do not have the time or the know-how to do your own bookkeeping, we can undertake this task for you on a monthly or quarterly basis.
For More Information
Over the coming months we will be keeping you up to speed with the latest MTD announcements from HMRC. In the blog section of our website we have a dedicated page for MTD related news, please do look out for new posts here or on our social media feeds on Twitter, LinkedIn or Facebook.
For any enquiries relating to MTD please contact us on 01904 655202 or email: firstname.lastname@example.org