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CH Accountancy
CH Accountancy

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Making Tax Digital (MTD)

HMRC's new plans for the annual tax return was first announced in the March 2015 budget, and until now we haven't really known much about it other than the rumours doing the rounds.  HMRC have now published consultation documents advising how MTD will work, who it will affect etc.  Here is a summary of the details.

Who will be affected by MTD?

Currently MTD will apply to sole traders (the self employed) and partnerships, with an annual turnover (sales) of over £10,000.  If you are self employed and have sales of under £10,000 then you will be exempt from the new initiative.  However if you have more than one business and the total from all those businesses is over £10,000 (even if one business is below this threshold) then you will need to comply with the new rules.  

HMRC have clarified "The small minority who genuinely cannot use digital tools will not have to do so'.  

When will MTD be launched?

The current plan is to launch MTD in April 2018, with a possible years extension for the smaller businesses within the scope of  MTD.  

How will MTD work?

Businesses will need to send a summary of their data to HMRC each quarter, which will consist of total sales and total expenditure, with expenditure broken down similar to how it is currently shown on the tax return.  This will need to be sent from online accounting software.  CH Accountancy will be setting up accounts for all sole trader clients for software which meet the requirements.  This will be in place for the start of April 2017 to co-inside with the new tax year.  More details will be sent out to clients in a few months.

Following the quarterly returns business owners will have nine months after the year end (current tax returns are 10 months) to file an 'End of Year Declaration' confirming final figures for the year.

There is the option to file more often that quarterly returns if business owners wish to do so, which would introduce flexibility for seasonal businesses.

Additional paper records will not need to be kept.

If the business is registered for VAT, one return would cover both the income tax and VAT reporting requirements.

Adjustments for allowances, closing stock, etc can be done either mid-year or at year-end.

How will I pay tax?

HMRC is not planning to change the current payment dates, however they payment on account system may change after further consultations. Businesses may be able to make voluntary payments during the year which will be towards their annual tax bill (called Pay As You Go).  It may also be possible to claim a repayment of voluntary payments if needed for cash flow/working capital.

Will there be more fines?

It is looking like the current penalty system will be scapped and a new points system introduced.  Four offences (missed deadlines for filing will result in a fine (amount not confirmed, but possibly £100), with further fines for each additional points.

Points will only be removed after 24 months in which all returns are submitted on time.

HMRC is also proposing to treble fines for late tax payments.

Some people have argued that the new initiative is just a scheme to make money, however it is clear it is repeat offenders that are being targeted.  It also looks like the new penalty scheme will be delayed for 12 months after MTD is launched to allow business owners to get used to the new initiative.  It looks like the new system will be simpler, fairer and more proportionate.

For more information please have a read of HMRC's Making Tax Digital Guide.

I will advise more details as and when they become available.

What are your thoughts on the new initiative?  After the initial shock it does not seem as scary as it first seemend.  The regular returns will allow business owners to keep on top of their finances and be more aware of their tax liabilities - meaning no more big shocks at the end of the year, and the ability to plan your cash flow throughout the year.

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