Kirk Rice Blog

Making Tax Digital (MTD)- Where Are We Now?Written on August 31, 2017 by Kirk Rice LLP

I am acutely aware that many businesses are still unaware of what Making Tax Digital (MTD) is and how it will affect them. Until a couple of months ago, some businesses were going to have to get up to speed very quickly as they would have needed to comply from April 2018. For various reasons the commencement date has been pushed back, and people could be forgiven for placing MTD on the back burner and worrying about it later. However, businesses would be well advised to take advantage of the extra time we all now have to start planning for this new reporting regime. But firstly, what is it?

What is ‘Making Tax Digital’?

Making Tax Digital (MTD) is the name given to the Government’s plan to move to a more digital tax system. As first announced, the plan was for the tax system to be fully digital by 2020. However, faced with mounting criticism, the Government was forced to make a number of concessions and in July 2017, it was announced MTD would be compulsory for larger businesses only (turnover above the VAT threshold, currently £85,000)

Businesses within MTD will be required to keep their records digitally and to make quarterly reports to HMRC through their digital tax account. Some aspects of the tax system will be simplified to facilitate MTD; for example, the cash basis will be extended to landlords. MTD applies to businesses (e.g. sole traders, landlords, companies) and other taxpayers (e.g. employees, pensioners).

What is the timeframe for MTD?

The timeframe is a recipe for confusion. When MTD was first announced, the timetable was April 2018 for income tax; April 2019 for VAT, and April 2020 for corporation tax. That changed in the 2017 Spring Budget when the Government had announced that MTD would be deferred for one year – i.e. to 1 April 2019 – for unincorporated businesses with a turnover below the VAT threshold (£85,000 from 1 April 2017).

But forget all that as significant changes have been made to the timetable. The current plan, as announced in July 2017, is for businesses with a turnover above the VAT threshold (currently £85,000) to be brought within MTD from April 2019 for VAT, and from April 2020 for other taxes. For smaller businesses (i.e. businesses with turnover below the VAT threshold), MTD is voluntary.

Where are we now with MTD?

The legislation providing for MTD will be included in a Finance Bill to be introduced in Parliament after the summer recess. It is likely that this legislation will be an updated version of legislation included in the 2017 Finance Bill published in March 2017. The March 2017 legislation did not make it into the Finance Act 2017 due to the tight timetable in Parliament in the run up to the General Election. The March 2017 legislation was published following a consultation process that began in August 2016 with the publication of six consultation documents.

The consultation documents published so far have mainly been of interest to unincorporated businesses. A promised consultation document dealing with companies has yet to be published.

What will a business have to do?

The main obligation on the business will be to keep digital records and to send digital periodic (e.g. quarterly) updates to HMRC. The single most important thing that businesses therefore need to consider is how they will do that. For those that already maintain their financial records on a software package such as Sage or Xero are already on their way to being ready, as the software houses have said they will be MTD compliant.

For those businesses that are still maintaining manual records or spreadsheets they will need to transition to an MTD compliant book-keeping package, and it would be wise to make steps with that sooner rather than later. If you require advice, or a demonstration of a software package suitable for your business, then do not hesitate to contact us.

For further information now, click here to read the Government Overview on ‘Making Tax Digital’.

If you would like more advice regarding this issue or any other tax matter, please contact one of our Tax Partners, Graham Jennings  on 01344 875 000 in our Ascot office or Hadley Baldock on 0208 789 8588 in our Putney office or email info@kirkrice.co.uk.

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Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. The FCA does not regulate tax and trust advice.