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Fundamental changes to the way you keep your records
John Willett | Towers + Gornall
Over the past 20 years the way in which tax returns are submitted to HMRC has changed, most notably with the switch from paper returns to online filing. On 31st January HMRC announced that further changes are afoot that will affect the majority of businesses in the United Kingdom, and these changes have been given the name Making Tax Digital (MTD).
What is changing?
At the moment the filing deadline for tax individuals is 31st January and for companies it is nine months after the company year-end. This single deadline system is being replaced and HMRC will now require businesses to file some form of report on a quarterly basis.
Reporting will be purely an online exercise and depending on the size of your business may require specialised software and a more regular method of bookkeeping than the one that has served you well in the past.
So, why the change?
It is suggested that reporting at more regular intervals than on an annual basis will benefit the tax payer because tax will be calculated incrementally, aligning the expectations of the tax-payer with the reality of the overall tax bill, allowing for better budgeting and cash-flow management.
HMRC also suggests that reducing the time between reporting dates will minimise the prospect of business records being mislaid, in turn leading to more accurate reporting. At this moment there is no suggestion that how you pay your tax will change.
Will I be affected?
As it stands those with an expected annual income of under £10,000 will be exempted from the new reporting requirements, however this threshold is likely to be increased. Consideration will also be given to those who suffer from restricted internet access.
If you expect your annual income is above the threshold then you will be required to meet the new MTD filing requirements.
When are the changes due?
HMRC expects to roll out the new system in stages, and will introduce those smaller sole traders and businesses before larger businesses and companies. The current schedule promises implementation on the following dates:
April 2018: if the profits are chargeable to Income Tax and Class 4 National Insurance Contributions (NIC) are paid;
April 2019: for those who are registered for and pay VAT;
April 2020: for those who pay Corporation Tax (Companies).
Paymaster General Mel Stride announced on 13th July 2017 that only those above the VAT threshold will have to begin filing with MTD-compatible software from April 2019. Small businesses below the threshold “will not be asked to keep digital records, or to update HMRC quarterly, for other taxes until at least 2020”.
What will I need to report?
MTD will require summary information to be filed quarterly. It is expected that spreadsheet information will be allowed, however any spreadsheets used will need to be of a high quality of data and will most likely need to be complimented with software designed to meet the MTD requirements. HMRC is currently working with software providers to ensure that MTD-compatible software is available.
How can I prepare my business for MTD?
It may seem like a long time until MTD is first implemented but the sooner arrangements are made, the easier the transition will be, whether this involves moving from the traditional cashbook to spreadsheet bookkeeping, or otherwise using specialised software and online cloud-based technology.
Towers + Gornall will be working closely alongside our clients to ensure a smooth transition. For those clients who already benefit from our TAGiT cloud-based solution we believe that the system is already in place for this to happen.
If you would like to be in touch regarding any of the above please do not hesitate to contact us.