Making Tax Digital – HMRC’s project to get all taxpayers to keep records digitally, and to send these to HMRC quarterly – is the big story for accountants at the moment. And so it should be. Tax rates and rules change on a regular basis but this is something quite different, requiring all taxpayers to change how they engage with HMRC. And its all happening soon: employees, the self-employed and landlords are expected to move on to the new system first, from April 2018.
In this blog, I’ll give a summary of the proposals as they apply to sole traders, partners and landlords. In future blog posts, I’ll look at particular aspects of the proposals in more detail, and at the impact on certain groups of taxpayers.
So, what will this new system look like? There are three key aspects:
- Taxpayers will be required to keep their business records digitally using software or apps that link to HMRC’s systems. This means the end of paper records and, perhaps, spreadsheets.
- Taxpayers will need to send regular updates to HMRC. In most cases, these will be quarterly and the taxpayer will have one month from the end of quarter to get the information to HMRC.
- Taxpayers will be required to undertake an End of Year activity. For some, this may mean simply confirming that their updates are correct and complete. For others, it will be an opportunity to make adjustments, claim allowances or reliefs and arrange for losses to be offset
Note that this is not voluntary; all taxpayers will need to do the above unless an exception applies. Currently, exemptions are proposed for sole traders and landlords will turnover of less than £10k, charities and Community Amateur Sports Clubs.
To assist the move to this new, digital system, HMRC are proposing some simplifications to the tax rules. For example, more businesses will be able to use the cash basis, and this option will be made available to landlords.
HMRC understand that not all taxpayers will want to do this themselves and so accountants will be able to engage with HMRC on the taxpayer’s behalf, much as they do now. At Applause, we envisage that some of our clients will need help with all three of the steps above, from entering their income and expenses in accounting software to finalising their tax affairs, whereas others will need help with only parts of the process. And that’s fine; we will work with our clients to establish what help they need, and how best to deliver this.
We believe that our clients will be better prepared than most to face the challenges of Making Tax Digital. In part, this is because we already encourage the use of digital tools for record keeping. For example, many of our clients use Kashflow or other accounting software to record their income and expenses. This gives them an up-to-date picture of how their business is doing, enabling them to keep track of amounts owed to them, for example.
But its also because we are taking an active role in the roll out of Making Tax Digital: I am a member of a group set up by the Chartered Institute of Taxation (CIOT) to engage with the decision makers in HMRC to ensure that Making Tax Digital works for everyone. This enables me to keep up to date with developments as Making Tax Digital takes shape, and it gives me an opportunity to raise issues which could affect our clients.
If you would like some assistance or have any questions on the above or any other areas of accounting or tax, please contact us at firstname.lastname@example.org
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