What’s it all about?

HMRC is beginning to put meat on the bones of an initiative launched in December 2015 which introduces a whole new way of administrating tax called Making Tax Digital (MTD).  As we saw in the Spring budget, who, how or when can change, but it’s starting for some in April 2018 and will cover all business by April 2020.

What we know so far:

From April 2018, self-employed people and landlords with an annual turnover over £85,000 will have to comply with Making Tax Digital.

From April 2019, self-employed people and landlords with an annual turnover over £10,000 will have to comply with Making Tax Digital.

From April 2019, all VAT registered businesses will have to comply with Making Tax Digital.

From April 2020, all businesses will have to comply with Making Tax Digital.

The intention is that both you and HMRC are able to see your tax position in ‘real time’ and you will be able to ‘pay as you go’ rather than paying one big bill payable by nine months after the end of the tax year.  It does mean that those of you who are currently keeping manual books will have to look to use software to keep your books up to date to allow you to file your returns on line to HMRC.

We have already started our journey towards MTD and by engaging with us, we will set you up with your own sage one accounting software.

At Stanford Williams Ltd we offer a range of services to assist our clients’ transition to Making Tax Digital.

• Training you to comply

We will happily spend time with you and help you choose the appropriate software that fits with you, your business and HMRC.  Our fee will depend on the time we spend with you.  As a guide a morning or an afternoon session will cost £75 plus VAT.

• Assistance services

We understand that you know your business and up until now you have been perfectly happy to keep your books and submit your own tax return.  This change may have made you think twice about getting some assistance.  Maybe you would like the option to do, most of the work yourself and have it checked by us before submission.

Option 1 – We can help you choose the best software for your business, help you set up and assist you on a monthly or quarterly basis by checking through your entries and feeding back any issues that we identify.

Option 2 – We could also take more of a role allowing you to enter data and allowing us to reconcile the books and keep them neat by reconciling the bank and correcting any errors before submitting quarterly returns on your behalf.

Option 3 – We can comply with all the requirements of Making Tax Digital from ‘keeping the books’, entering data from your source documents, reconciling the bank and submitting results to HMRC.

Our fees will always be time and skill related and will be discuss and agreed before proceeding so that you have no nasty surprises.

If you want to give us a call or pop in for a cup of tea, we will happily have a chat about the consequences and assist you on complying with Making Tax Digital.

HMRC have come up with some Myth busters! However, the actual facts may be somewhat different…

‘Myth’: Businesses will need to do four tax returns a year

HMRC’s myth buster said:

• No. Businesses will not need to file four tax returns a year.
• The new digital accounts will integrate all the different information businesses already provide to HMRC into a simple, streamlined system.
• Instead of one big, onerous tax return each year once a quarter businesses can check that the information they are collecting digitally is correct, and simply click “send” to update HMRC.

HMRC’s ‘alternative truths’ are:

HMRC says elsewhere:
“All businesses, with income tax, National Insurance contributions, VAT or Corporation Tax obligations will be impacted by MTD as they will need to keep track of their tax affairs digitally and update HMRC more regularly using digital tools…” They have to report to HMRC both quarterly and annually using software to file returns for them.

The actual facts:

• Yes, it is FIVE tax returns per year.
• HMRC will also be risk testing your data.
• It will be pretty risky to press ‘send’ without reviewing your analytics.

‘Myth’: This does not consider those who are digitally excluded

HMRC’s myth buster said:

• There is no question of forcing those who cannot go digital to do so. Help will be available for businesses who struggle to use digital tools.
• People who genuinely can’t use digital tools will be offered alternatives, like nominating someone else to update their information for them, or giving information by phone.

HMRC’s ‘alternative truths’ are:

 Help is by default available online.

The actual facts:

HMRC has not published details as to how it will deal with those who struggle with IT or do not have access to reliable internet or phone signals.

‘Myth’: Businesses don’t want to do tax digitally

HMRC’s myth buster said:

• Millions of firms already manage their tax online. 99% of VAT returns are done online, 98% of Corporation Tax and 86% of Self-Assessment returns are done online.
• Many taxpayers want more certainty over their tax bill and access to an in-year picture of their tax position, which their new digital accounts will provide.

HMRC’s ‘alternative truths’ are:

HMRC admits that: less than 8% of VAT returns are filed using third party software.

The actual facts:

• Online filing of VAT is actually mandatory.
• Most people use HMRC’s software because third party software does not make the adjustments required for VAT
• 98% of corporation tax returns are filed online because it is mandatory to do so.
• 86% of self assessment returns are done online because the deadline is later than the paper filing deadline.

‘Myth’: Businesses will need to keep extra records and the digitisation will cost a fortune

HMRC’s myth buster said:

• No additional records are needed for increased digitisation. These changes will contribute to our target to reduce business burdens by £400m.
• For those who aren’t already keeping records digitally, there will be free software and clear, simple advice on how it can be used.

HMRC’s ‘alternative truths’ are:

HMRC says that:
By 2020, most businesses will be required to use software or apps to keep their business records and to provide regular updates of information.”

In short, businesses who currently do not use software or computers will be required to do so, or engage an agent to act for them. HMRC is not providing free software.

The actual facts:

• Anyone who is mandated to file under Making Tax Digital will have to equip themselves with the necessary hardware and software.
• An internet connection is required.
• HMRC is providing APIs so that software can ‘talk’ to it.
• You will in time be fined if you make errors in recording or sending your data.
• You will have to pay your accountants more if you wish them to check your data. They will have FOUR extra submissions to check.

‘Myth’: The new plans will increase errors and hinder compliance

HMRC’s myth buster said:

• Not true. The scope for error will be greatly reduced – meaning fewer businesses face the shock of a bigger tax bill than they expected at the end of the year.
• Annually £6.5bn is lost through error. These reforms will improve the quality of record keeping and reduce mistakes.
• HMRC have also published four case studies setting out how the digital tax system will help individuals and companies:
• Record keeping software and apps will automatically link financial records with digital tax accounts
• Bank accounts can be directly linked to apps to automatically populate income and expenditure
• Apps will signpost to relevant HMRC guidance
• Tax liabilities can be estimated and regular payments made to cover income tax and VAT liabilities.

The actual facts:

• In 2014 HMRC re-launched its Business Record Checks pilot. Amidst allegations that small business was poor at record keeping, it was discovered that the situation was not as bad as feared. HMRC have never published the result of this pilot.
• Many taxpayers will have to start using new software and learn bookkeeping whilst running their business.
• People will need to set up software to link to their bank accounts etc.
• Apps do not automatically sort out bank feed: the customer still has to instruct what expenses are business or not.
• HMRC’s guidance is not the tax law. There is a limit how much guidance you can fit on a small screen.
• Tax liabilities can be estimated – this is a joke right? Surely if MTD works tax liabilities will be correct.
• Taxpayers will be required to make payments on account quarterly.
• Late payment penalties will apply.
• MPs are exempt from MTD because of ‘security’.