Making Tax Digital for business
Under proposed new rules for Making Tax Digital (MTD), it is likely that from April 2018, some property landlords, self-employed individuals and unincorporated partnerships will need to file quarterly information to HMRC using HMRC approved software. This will be phased in based on turnover thresholds (see below) and eventually most individuals and businesses will be within the quarterly filing regime.
What does it mean if you are a landlord, self-employed or a partnership?
MTD will introduce changes to how you keep accounting records, when you need to collate and submit information to HMRC, and the method used for your submission. It will not make changes to the dates on which you have to pay your taxes.
When will Making Tax Digital apply to you?
A business with annual turnover of less than £10,000 is exempt from MTD.
Unincorporated businesses will join the MTD regime in two phases, depending on the level of their annual turnover (self-employed and/or rental income) as shown below.
|Comply from the start of the accounting period beginning||First quarterly report for quarter ended||
Filing due by
6 April 2018
|5 July 2018||
5 August 2018
|Between £10,000 and £85,000||
6 April 2019
|5 July 2019||
5 August 2019
Digital tax accounts
Every business that must comply with MTD will be given a Digital Tax Account (DTA) by HMRC where you can see all of the business’s tax details in one place.
Personal tax accounts
In addition, every individual self-assessment taxpayer will also have a Personal Tax Account (PTA), where they can, amongst other things, check and amend their tax code, update their address, check their state pension entitlement and see any gaps in their National Insurance records. You must register your online HMRC Personal Tax Account here.
Keeping accounting records
Under MTD, unincorporated businesses will be required to:
• maintain their records digitally, through software or apps, or within an approved format spreadsheet that meets the requirements of MTD,
• report summary information to HMRC quarterly through their DTA, and
• make an ‘End of Year’ declaration through their DTA.
As your accountants and tax advisers, we can help you with all of these responsibilities.
What are digital records?
A digital record is a record of each transaction of the business that is kept in a digital format rather than on paper.
You will need to use software appropriate to both the requirements of MTD and your business. For example, if you are registered for VAT, your records will need to be kept in software that can cope with the VAT scheme you use.
Once all the relevant data for a quarter has been compiled into the software, the summary data for the quarter – not all income and expenses – must be fed into HMRC systems.
For larger businesses the first quarterly return will be required for the three months to 5 July 2018 and needs to be sent to HMRC by 5 August 2018.
For smaller businesses, the respective dates will be 5 July 2019 and 5 August 2019.
When the quarterly update is due, you will have one month to compile your records and complete the summary update on HMRC’s systems. We can help by doing all or some of this work for you, as you wish.
What about a tax return for the business?
At the end of the year, many businesses will need to make adjustments to the information they have submitted to HMRC each quarter. Once the adjustments have been finalised, you must make an ‘End of Year’ declaration to confirm that everything is complete and correct in your DTA.
You will have until 31 January following the end of the tax year to complete the End of Year declaration.
What do you need to do?
The only immediate action that you need to take is to register your Personal Tax Account. You also need to consider whether you would like our help with your quarterly filing and let us know.
If you currently keep your records in a hard copy rather than digital format, you will also need to think about which software solutions is best for you. Free software that can be used to manage your digital records is still being developed and tested by HMRC and various IT suppliers. As we find out more, we will let you know. Meanwhile, there are other options that we can advise on.
How we can help you
- keep you informed of developments under the Making Tax Digital regime
- help you make sure you are keeping the right records in the right format
- advise on the appropriate software that will best suit your business needs as well as enable you to submit MTD data to HMRC
- assist with your quarterly filing obligations
- ensure you make the appropriate adjustments
- submit your ‘End of Year’ declarations on time.
If you have any questions regarding Making Tax Digital please contact Yogi Dhanak.