Making Tax Digital Delayed until 2020

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The Treasury have delivered what is potentially good news for many (yes, you have read that correctly).  Making Tax Digital, or MTD to give it its affectionate moniker, has been both delayed and reduced in terms of requirement.

For businesses that are VAT registered, VAT returns will still have to be submitted via MTD compatible software from 1 April 2019, but in terms of quarterly reporting for tax and national insurance (NI) purposes,  MTD has been delayed until at least April 2020.

The new timetable for income tax and NIC reporting is as follows, although the £85,000 small business threshold is subject to change.

Annual turnover

Old timetable

New timetable

Over £85,000

6 April 2018

At least April 2020

From £10,000 – £85,000

6 April 2019

At least April 2020 but on a voluntary basis

Companies

1 April 2020

At least April 2020

It appears that the Government have quite enough on their plate without launching MTD and undoubtedly many taxpayers will welcome the delay!

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

HMRC Update On Making Tax Digital

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Following a consultation period, HM Revenue and Customs have now released more information regarding the changes to self assessment under their new “Making Tax Digital” project.

Some of the more significant details are:

  1. Receipts and expenditure recorded on spreadsheets can be linked to HMRC software.
  2. Free software will be available to smaller businesses.
  3. The cash accounting system of reporting will be extended.
  4. Charities will not be obliged to take part in quarterly reporting.
  5. In the first year, a 12 month period of grace will be allowed before late submission penalties are applied.

Businesses and buy-to-let landlords with a turnover of more than £10,000 pa will be expected to submit their financial information quarterly, the new regime to be rolled in from April 2018. A spokesperson for the Revenue optimistically suggests this will help businesses avoid errors on returns and cut down the need for compliance investigations.

For many small businesses, however, the prospect of transmitting their financial information on-line every 3 months is not one they welcome. Recent research carried out by HMRC themselves showed that over 40,000 businesses had concerns about having to comply with quarterly reporting.

The Federation of Small Businesses (FSB) also warns that more vulnerable taxpayers will incur additional costs in software and/or increased accountancy fees and that HMRC’s plans to implement the system in 2018 is total “fantasy”. A survey undertaken by 1-Tap Receipts has even shown that a staggering 97% of self-employed taxpayers who took part were unaware of the proposed changes to the tax system.

With these factors in mind, the FSB is supporting a recommendation by the Treasury Committee for quarterly reporting to apply only to businesses with a turnover in excess of £83,000 (in line with the VAT registration threshold) and to be phased in gradually from 2020. This would give the Government a chance to re-think their proposals and tax-payers time to consider their options going forward.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Self Employed Landlords: What you need to know about Digital Accounting

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By 2020 most businesses, self-employed individuals and landlords will be required to use software or apps to keep their business records and to report their income and expenditure on a quarterly basis to HM Revenue & Customs. This new regime will commence on 6 April 2018 for most small businesses. Self-Assessment tax returns will no longer be completed from 2018/19 onwards.

What records will I need to keep?

HMRC will expect businesses to scan paper invoices and receipts into software using a smartphone camera. For many businesses it is expected that the scanned evidence of income and expenditure will be automatically processed by the software into the relevant accounting entries. HMRC prefers that the following data fields are completed for each receipt or expense item:

  • Invoice date and payment received date, if cash basis being used
  • Invoice value and payment received value, if cash basis being used
  • Income or expenses category, and
  • Deducted amount/percentage for expenses.

The above is the minimum required data which will be needed to enable software to identify and categorise each transaction.

Landlords

Landlords will need to provide the following:

  • The full address of each property
  • Income and expenses attributable to each property.

Quarterly Updates

The data of income and expenditure will have to be reported quarterly, although the reports will only be summary data. Businesses will be able to see an estimate each quarter of what their liability will be, based on the summary data provided.

End of year return

A final fifth submission will be made which will incorporate a correct and complete declaration. It is proposed that this final account will have to be submitted within 9 months of the end of a period of account.

The above is subject to a period of consultation due to end in November and final details are due to be announced in December. Green & Co will keep you informed as further details/changes are announced.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Digital Tax Reporting – The Story So Far

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In 2015 the Government announced its commitment to bringing our tax system into the 21st century by introducing digital technology and dispensing with the annual tax return.  The new system would involve digital quarterly reporting with a view to making tax simpler and easier to manage for the taxpayer.  The Financial Secretary to the Treasury, Jane Ellison MP, has said that the new tax system will help businesses put “people and profit, not paperwork, first.”

Over the past 18 months  consultations have been taking place to establish exactly how HMRC are going to implement the changes and what effect it will have both on the Treasury and taxpayer. The Federation of Small Businesses (FSB) says that, following what it calls “real dialogue with the business community”, HMRC have listened to their representations and have announced the following considerations:

  • Landlords and businesses with a turnover of less than £10,000 to be exempt from digital reporting and quarterly returns.
  • The introduction of quarterly digital updates for other small businesses to be deferred.
  • Reporting to be based on a cash accounting scheme, whereby tax is paid on the money a business actually receives, rather than on invoices raised.
  • Help, both practical and financial, to be made available to ease the transition to digital accounting, but where a business cannot make the move, for whatever reason, it will not be forced to do so.

The FSB has welcomed the announcement and estimates that around half of Britain’s 5.4million small businesses could now be outside the scope of the initial moves into digital accounting.  The consultations are on-going, but it is hoped that the new digital tax system will be in place by 2020.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.