MTD is the most fundamental change to the administration of the tax system for at least 20 years, and it will change the way that all businesses report their finances to HMRC.
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: Instead of current yearly tax returns, 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. This will – very broadly - be treated as VAT returns are currently
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 compete 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
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 (e.g., 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 in the future, covering issues such as;
• Consideration may need to be given to the possibility of an exemption
• If you aren’t using cloud based software, you will need to
• If you currently use accounting software, it will need to be upgraded - if you are considering acquiring software, 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 either make your own quarterly submissions to HMRC, or provide records to us promptly after each quarter-end so that we can do this for you
• Don’t panic – as we are planning how we can best help you
We are currently assessing within the firm how we can best meet the needs of the range of clients we have, and how this might be rolled out over the next two years.
We will therefore be in touch over the coming months, although as a firm we only know as much as Central Government are telling us, so please bear with us. However, should you have any queries or questions with regard to the above please do not hesitate to contact us on 0161 477 2636.
The Team at Allens