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Making Tax Digital

What does it mean?   

The Government is introducing a major change to the way records must be kept and how businesses report income and expenses to HMRC. All Self Employed individuals, partnerships, landlords and companies with business income over £10,000 are affected by the requirements of Making Tax Digital.

We have outlined the basics of MTD below but will contact you again as the start date relevant for your business approaches. Please note that whilst the measures were not enacted in Finance Act 2017 due to the General Election, it is our understanding that there has been no policy change and the planned timetable will not change.

If you are a landlord or an unincorporated business with a turnover above the VAT threshold (£85,000 from 1 April 2017) you will be required to comply from the start of accounting periods which begin after 5 April 2018.

Please be assured that, whilst this is a major change, Watts Gregory will help you through the process. There are many key questions that have yet been unanswered by HMRC, but we will keep you informed as and when more information becomes available.

Key Points

Making Tax Digital (MTD) is the most fundamental change to the administration of the tax system for at least 20 years.

The essential elements for businesses and landlords are:

  • Paper records will no longer be sufficient: It will become mandatory for almost all businesses and landlords (self-employed, partnerships and limited companies) to use software or a spreadsheet to keep accounting records. Paper accounting records will cease to meet the requirements of tax law.
  • Quarterly reporting: There will be a requirement to submit updates to HMRC each quarter directly from accounting software, within one month of the end of each quarter.

As your accountants we will support you through these changes and provide the ongoing services that you need. However, the changes are so fundamental that it will be necessary to review your current record keeping systems and to reconsider what work you decide to do yourself and which activities you wish to include in the service we provide.

When does it start?

Your start date for MTD depends on the size and structure of your business and your accounting year end.  We will discuss your specific start date with you, but in general:

Income Tax (self-employed, partnerships, trusts and landlords who complete self assessment tax returns):

  • MTD will become mandatory from April 2018 for businesses and landlords with gross income over the VAT threshold (currently £85,000 per annum).
  • MTD will become mandatory for those below this threshold from April 2019.

MTD pilots are starting from April 2017 and we will contact you separately if these might be helpful for your business.

VAT: From April 2019 all VAT registered businesses (including limited companies) will have to file their VAT returns directly from accounting software. The current online VAT return will cease to be available.

Corporation Tax (limited companies): MTD will become mandatory for corporation tax reporting from April 2020.

What are the exemptions?

The smallest businesses and landlords with gross income of less than £10,000 will be exempt. Also exempt are those who are not able to engage digitally for religious reasons or due to a factor such as age, disability or location (eg, no availability of broadband).

What do I need to do now? 

The action required depends on the size and structure of your business and how you currently keep your records - we will need to discuss your transition to MTD with you.

  • Consideration may need to be given to the possibility of an exemption.
  • If you currently use accounting software it will need to be upgraded. If you are considering acquiring software or joining the pilot, please discuss this with us first.
  • If you currently maintain records on paper or a spreadsheet, your processes will need to change. You will need to make your own quarterly submissions to HMRC or provide records to us promptly after each quarter-end and engage us to do the bookkeeping and quarterly reporting.