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By Cheaper Accountant, Dec 31 2017 12:03AM

This blog post is the second of a series of articles that we will publish on HMRC’s “Making Tax Digital” or MTD. A brief introduction to Making Tax Digital was given in the first blog post published during October of this year.

The Government has pledged to a digital revolution to improve the way the tax system operates. The aim of MTD is to simplify the tax system for tax payers and improve the user experience. A fully digital tax system by 2020 is expected to address the following three objectives:

1. Removal of form filling and a closer connection to real-time information

2. Removal of time delays as the tax system operates on a closer to “real-time” basis

3. Increased access to digital accounts underpinned by the seamless upload of information

Recent Announcements – Qualifying Threshold

After the review of the original Making Tax Digital proposals, the Government announced during July 2017, that businesses with turnover exceeding a specified threshold will need to comply with the Making Tax Digital regime from April 2019 but for VAT only. This threshold is in effect linked to the VAT threshold and means that the MTD requirements apply to businesses with turnover above the VAT registration threshold (currently £85,000). Companies with turnover below the VAT threshold are not obliged to comply with MTD, all such businesses do have the option of complying with MTD if they wish to do so.

The scope of Making Tax Digital will not go beyond the initial scope and threshold mentioned above until the system has been evaluated by the Government at least a year after implementation (April 2020). This means that small businesses and landlords will have ample time to make the necessary steps to keep digital records. This could still lead to all companies being drawn into this regime at some point in the future. We’ll certainly keep you updated on this.

What does this mean for me?

From April 2019, VAT registered businesses with turnover above VAT registration threshold (currently £85,000) will have to comply with the following:

1. Records will be kept digitally for VAT purposes only

2. Use compatible software (or an app) to submit their VAT return information to HMRC

Why is the Government introducing this?

According to the latest tax gap figures published by HM Revenue and Customs (HMRC), many businesses have complained about the complexity of getting their tax right. Mistakes and errors are found in every sector and they account for over £9 billion lost annually in tax.

Making Tax Digital aims to reduce errors and mistakes by introducing a modern digital service platform that promises to, not only reduce the tax gap, but also reduce businesses’ costs and the need for HMRC to intervene and make corrections. Time will tell how much this impacts businesses and what the extra burdens, if any, will be.

The idea behind migrating the accounting records to a digital platform, will allow businesses (including self-employed and landlords) to keep track of their income and expenditure digitally. This promises to make the quarterly reports to HMRC an easy task by using specifically designed software (or an app), which will be available to use from April 2018.

This modern digital revolution aims to improve the tax payer user experience by helping the tax payer to get their tax right first time. HMRC is expecting that many businesses that are not obliged to comply with this reform by April 2019 will still choose to do so. The government anticipates that companies will see the benefit of keeping their records digitally, especially when making quarterly updates, which will prevent errors and mistakes commonly made with manual calculations. The compatible software will include nudges and prompts that will help reduce common mistakes in order to get the calculation right first time and avoid HMRC’s costly and unpleasant interventions.

The key benefits of Making Tax Digital, as stated by the Government, are as follows:

• Businesses will always know their current position when it comes to tax (closer to “real-time” picture)

• Tax information will be accessible in a single place

• Businesses and agents/accountants will be able to work more collaboratively

The recent announcements highlighted above mean that a large number of clients will remain unaffected by Making Tax Digital as it moves into the first phase of implementation. We suspect that the Government will seek to expand the remit of MTD in future years but only time will tell.

We remain committed to assisting all clients affected by the introduction of MTD and we will strive to provide cost effective accounting solutions that allow all clients to meet their ongoing legal accounting requirements.

By Cheaper Accountant, Oct 1 2017 07:43AM

This blog post is the first of a series of artilces that we will publish on HMRC's "Making Tax Digital" or MTD. There has been a number of developments in this area during recent months and this series of articles that will be published on our site over the coming days and weeks will focus on introducing MTD, what MTD means for you the reader and will provide details and guidance on the most up-to-date developments relating to MTD.

Introduction to Making Tax Digital

The Government has committed itself to a digital revolution and to fundamentaly reform the way in which the tax system operates. This is a somewhat ambitious agenda which initially targeted the year of 2020 for full implementation. The aim of MTD is to simplify the tax system for tax payers and effectively improve the user experience for millions of taxpayers. A fully digital tax system in 2020 is expected to address the following three aims:

1. Removal of form filling and a closer connection to real-time information;

2. Removal of time delays as the tax system operates on a closer to "real-time" basis;

3. Increased access to digital accounts underpinned by the seamless upload of information.

This may mark the end of the tax return for both individuals and businesses and only time will tell. Businesses and individuals can expect to file and update electronic records held with HMRC at any time and in real time. The aim is to collect tax quicker and more efficiently. Rather than making annual tax payments, companies and individuals are likely to need to pay tax on a more regular basis just like you would if you fell wihtin the PAYE tax system. The regular updating of information filed with HMRC is likely to come at a cost. This is where you may wish to engagement a more affrodable accountant for your accountancy work and we can certainly help you here.

It was initially stated that a number of businesses, including the self-employed and property landlords, may be required to update HMRC at least quarterly from April 2018. This appears to be quarterly business accounts which will underpin quarterly electronic tax calculations (possibly replacing the annual tax return) with quarterly payments of tax being likely. These quartely updates are expected to be completed electronically and online. This seems to be similar to the Payroll Real Time Information and the changes that were made to the filing of employer payroll information.

Small business owners will need to ensure that all bookkeeping is performed on a regular basis so that quarterly filing requirements are not overlooked. You are likely to need an accountant to help you with these new quarterly duties and an accountant could be needed to submit the lodgement to ensure that everything is accurate and correct from a tax perspective. This may result in four significant payments of accountant fees and small business owners will need to be vigilant when engaging an accountant as these fees could certainly mount up across a twelve month period.

Like I said earlier, this is the first of a series of blog posts on the topic of making tax digital and we hope that you find this information useful and it provides food for thought as you move forward wih your company accounting.