“Making tax digital” …so what?
A new term has been invented by the government to reflect the central role of businesses in the Making Tax Digital project – Making Tax Digital for Business – and a new acronym – MTDfB.
The government has decided how the general principles of MTDfB will operate. Much of the detail will be set by Regulations which are expected to appear in the summer.
Under MTDfB, businesses will be required to:
- maintain their records digitally, through software or apps
- report summary information to HMRC quarterly through their ‘digital tax accounts’ (DTAs)
- submit an ‘End of Year’ statement through their DTAs.
DTAs are areas where a business can see all of its tax details in one place and interact with HMRC digitally.
When will this start?
Unincorporated businesses and unincorporated landlords with annual turnover:
- above the VAT threshold (which has been set at £85,000 from 1 April 2017) will need to comply with the requirements of MTDfB from the start of accounting periods which begin after 5 April 2018
- at or below the VAT threshold but above £10,000 will need to comply from the start of accounting periods which begin after 5 April 2019.
Businesses and landlords with turnovers under £10,000 are exempt from the requirements. Companies (and partnerships with a turnover above £10 million) will not come within MTDfB until April 2020.
What will quarterly accounting mean?
This is still the big question to which there are no definitive answers at present. The government has made some concessions from its original proposals including:
- if businesses are using a spreadsheet to record data, they will be able to continue to use this for record keeping, but they must ensure that their spreadsheet meets the necessary requirements of MTDfB – this is likely to involve combining the spreadsheet with software
- the requirement to keep digital records will not include an obligation to store images of invoices and receipts digitally. Under the original proposals, HMRC envisaged that a digital record would include not only a record of each item of income and expense but also evidence of each transaction such as copies of invoices and receipts.
Once all the relevant data for a quarter has been compiled into the software, the business will then feed this data directly into HMRC systems. The information that will be sent to HMRC will be summary data for the quarter, not all income and expense items. Businesses will have one month from the end of the quarter to submit the update to HMRC.
Why is all this important to you?
It’s important to you. But, it’s not particularly interesting or relevant – because naturally you are getting on with the job of running your own business.
It’s more exciting for accountants to discuss the issues and the merits of this than it is for our clients. We prefer to talk to our client in a straightforward and practical manner – so using confusing acronyms like MTDfB is, in our view, totally unhelpful to small and medium sized businesses.
