What Is 'Making Tax Digital For Businesses' (MTDfB)?

What Is ‘Making Tax Digital For Businesses’ (MTDfB)?Written on May 11, 2017 by Kirk Rice LLP

Making Tax Digital For Businesses (MTDfB) is the name given to the Government's plan to move to a fully digital tax system by 2020. With some limited exceptions, businesses 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). The focus here is on MTD for businesses.

What is the timeframe for MTDfB?

The General Election has thrown a question mark over the timeframe with many of the provisions relating to MTD withdrawn from the 2017 Finance Act just before Parliament was dissolved. However, it is possible that these will be re-introduced in a new finance act once the General Election has taken place.

Prior to the announcement of the General Election the following was the planned timetable:

MTD will be phased in, starting with Income Tax from April 2018 and then VAT from April 2019 and Corporation Tax from April 2020. Therefore, unincorporated businesses and landlords will be the first to experience MTDfB, from April 2018.
At the Spring Budget, the government announced that MTDfB 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). The start date for unincorporated business with turnover in excess of the VAT threshold remains 1 April 2018.
MTDfB is deferred until 2020 for partnerships with a turnover above £10 million. Subject to this deferral for large partnerships, a partnership will be brought within MTDfB from April 2018 if at least one of the partners is subject to income tax.

What will a business have to do?

The main obligation on the business will be to send digital periodic (e.g. quarterly) updates to HMRC. Sole traders, partners and landlords will come within MTDfB with effect from the first accounting period beginning after 5 April 2018 (5 April 2019 where turnover is less than the VAT threshold; see above). The first quarterly update obligation will arise three months after the start of this accounting period and there will be 1 month from the end of the quarter to file the quarterly update. End-of-year activity must be concluded and sent by the earlier of ten months after the last day of the period of account and 31 January.

Complying with MTDfB will be a significant challenge for many business owners, requiring them to keep their records digitally and in real time (or at least, much closer to it than under the current system). It is important that business owners understand what is required of them, and that they begin the process of complying with MTDfB in advance of the start date. Kirk Rice can of course support you in meeting your MTDfB obligations.

The government has confirmed that there will no changes to payment dates, although the government is consulting on a voluntary pay-as-you-go system

Does MTDfB apply to all businesses?

Some businesses will be exempt from MTD; for example, charities and businesses where gross income does not exceed £10,000.

We will keep you up to date on this process as it moves forward, however if any reader is interested in discussing this topic further do telephone Graham Jennings on 01344 875 000 in our Ascot office or James Moody on 0208 789 8588 in our Putney office or email info@kirkrice.co.uk

If you would like to receive Kirk Rice’s Taxing Times Questions regularly by email, simply email info@kirkrice.co.uk stating Taxing Times Questions in the subject heading and we will add you to our distribution list.

Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made.

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