Making Tax Digital (MTD)
Don’t be daunted by HMRC’s new scheme Making Tax Digital (MTD)
It is no surprise that, like everything, tax is now to become digital. By 2020 HMRC will be moving to an entirely digital system. This will mean the end of the mad rush before 31st January every year and hopefully help people to become more organised.
Tax payers will now be able to see all their information in one place from Employers, banks and other government agencies, via their digital tax account.
At the moment, this seems like a much better system for businesses however there are still some areas that are left unclear and therefore we must wait for more updates from HMRC.
Making Tax Digital – What does this mean for me?
Currently those who are self-employed report information to HMRC 10 months after the year end and pay any tax owed. HMRC now want to change this so that people submit their information quarterly and it reflects closer to ‘real time’.
By submitting this information in ‘real time’ will mean businesses can see an estimate of how much tax is due in advanced compared to the current system when you may not know up to a week before payment is due, depending on when you/your agent submits your Self-Assessment.
You will still need to submit the final annual Self-Assessment but this should be far easier than the current system as the information has already been submitted quarterly.
- Businesses/Individuals become more organised with paperwork
- Tax due is known as the year progresses and therefore can budget for this expense
- No more end of year accounts- no rush before 31st January
- Businesses need to ensure their agent has this information every quarter instead of once a year
- More work for agents as they will be receiving information and processing it x3 times more than usual for each client which may see an increase in prices
As above, partnerships will need to submit their accounts quarterly. A partner will be nominated to submit the quarterly returns which will produce part of the individual partners tax return.
The good news is that the threshold has now been changed from £10,000 to £89,000. This means for many who are Self-Employed if your turnover is less than £89,000, you won’t need to go to MTD before 2019, when all those who earn over £10,000 will have to submit quarterly returns.
For Limited Companies the system is very much the same as if you were Self-Employed as you will need to submit quarterly returns.
If you are registered for VAT this shouldn’t have too much of an impact in terms of work load as you will already be submitting/providing your agent with information quarterly.
The quarterly returns will be based on the accounting dates and this is not possible to change but the date within the month of submission can be changed i.e. 1st July can be changed to another date in the month but it must be done within July.
If you are not VAT registered, as with those who are Self-Employed, you will need to be more organised and provide information each quarter to your agent.
In a nutshell….
Making Tax Digital – What do we know?
- HMRC will be introducing MTD from 2018 but a pilot scheme will start April 2017 to test out the system they are proposing
- Those who have an annual turnover of £89000 or more will need to start submitting quarterly return from April 2018
- If you earn over £10,000 or more you will need to submit quarterly information from April 2019
- If incorrect information is submitted you can make amendments in the next quarter
- Property income will need to be submitted each quarter to HMRC but if you have more than one property this can be summarised in one quarterly submission
- There will be penalties for late submission of quarterly returns but this will not be put into force for the first year
- For small businesses they will still only be required to submit three line accounts; income, expenses and profit
- Businesses will not need to store records digitally
- Charities will not need to keep digital records
- Voluntarily pay as you go each quarter if you choose otherwise tax will be due 31st January the following year
- Construction Industry Scheme (CIS) returns will feed directly into the digital tax account for the subcontractor
Making Tax Digital – What don’t we know?
- HMRC have said that individuals will receive free software to complete their self-assessment however at the moment it doesn’t look like they will be offering that free software
- What the charges will be for late submission- this is still at the consulting stages and we will not have further information until after June 2017
Smart Online Accountants Ltd – One Step Ahead
Our clients are already one step ahead of the game as they send us information monthly, bi-monthly or quarterly using our free post envelopes. When Making Tax Digital comes into effect we will be able to submit clients accounts each quarter.
HMRC estimates that the additional cost for those who are Self-Employed for going digital will be £150; the good news is that our fees will not reflect that.
For more information on how to sign up please visit the website www.smartonlineaccountants.co.uk and view our video which explains our 5 simple steps.