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CH Accountancy
CH Accountancy

Cheryl Price ACCA

01245 791164 | hello@chaccountancy.co.uk

Making Tax Digital is coming – it's time to get prepared!

HMRC's new plans for the annual tax return were first announced in the March 2015 budget.  Their plan is to make tax digital by 2018. Under the new Making Tax Digital (MTD) scheme, people will have online tax accounts that track their professional and business transactions automatically. These accounts will be submitted quarterly to HMRC to estimate the taxes due.

The online system is intended to be more transparent while removing some of the inaccuracies and inefficiencies that hinder paper tax filings.

This is not the same as filing a return online – most people have already done that for years!  MTD has 3 important distinctions:

  1. Bank transactions and other financial information will flow automatically into people’s digital tax account, whether or not they declare that income or those expenses.
  2. Submissions will need to be made at least once per quarter.
  3. Submissions will need to be filed using some form of software (which uses an app to integrate to your digital tax account)

Who will be affected by MTD?

Currently MTD will apply to sole traders (the self employed), partnerships and landlords, 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'.  

Directors, and those with share income or capital gains are not part of the scheme.

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.  

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.

What does this mean for me?

You will need to submit your records every quarter for us prepare the quarterly submission.  Some people may feel this is a burden, however we are looking at this as a great step for your business:

  • you will be able to keep on top of your accounts, so there will be no big backlogs of up to a years worth of records to sort at end of year
  • more frequent submissions will help avoid nasty surprises – big tax bills can accumulate over the course of the year, by looking at your figures quarterly we can also assist with tax and cash flow planning.
  • as a bonus cloud accounting software also allows you to access your accounts from anywhere there is internet, and collaborate easily with us.  With the software you can also sync other online services such as Point of Sale software, CRM packages, online payments and many many more.

We’ve taken decision to start in April 17 so we can all get used to this way of working, iron out queries/problems etc ahead of April 18, so we are fully prepared once the new process is mandatory.

The rules state all those with turnover (not profit) under £10k are exempt, however, we will be doing this for all of our clients as we feel it is best practice, it is more beneficial to all business owners, and it is great preparation for when your income goes over the £10K turnover mark.

With this in mind we have created some packages for our services, depending on your businesses needs.

All packages include:

  • Xero cloud software (for more information on Xero please visit our Xero page)
  • Quarterly bookkeeping & submission to HMRC
  • Quarterly headline profit and loss report with a tax projection (tax due on current profits to date, and a projection to year end)
  • Full year end accounts – profit and loss and balance sheet reports
  • Full year end final submission
  • Liaison with HMRC and unlimited personal support
  • A free copy of our handy start up guide eBook

The package details are as follows.

Self Assessment Packages

The DIY Package

This package includes the lowest version of Xero software, and is aimed at those who do not use a separate bank account for their business funds, do not need to raise invoices and are happy to do some work each quarter.  We will supply a template spreadsheet, which will need to be completed and submitted to us each quarter.  We will then import this spreadsheet to the Xero software to prepare your quarterly bookkeeping, submissions and reports, as well as the year end return and full accounts.  The Xero software includes an app for your smart phone, which allows you to take pictures of all of your receipts as and when you make a purchase - which means you do not need to keep the paper copy of your receipt.

The Basic Package

This package includes a basic version of Xero software and is for those who use a separate bank account, but do not need to raise invoices.  We connect your bank account to the Xero software, and your bank transactions are imported directly into the software for us to complete the quarterly bookkeeping, submissions and reports, as well as the year end return and full accounts. The Xero software includes an app for your smart phone, which allows you to take pictures of all of your receipts as and when you make a purchase - which means you do not need to keep the paper copy of your receipt.

The Premium Package

This package gives you full functionality of the Xero software – you can prepare quotes, raise invoices and has the bills functionality.  Invoices can be raised to your clients in the software and emailed directly to your customers.  You can also add payment services such as PayPal and Go Cardless to your invoices for online payments. We connect your bank account to the Xero software, and your bank transactions are imported directly into the software for us to complete the quarterly bookkeeping, submissions and reports, as well as the year end return and full accounts. The Xero software includes an app for your smart phone, which allows you to take pictures of all of your receipts as and when you make a purchase - which means you do not need to keep the paper copy of your receipt.

Our existing pricing structure will remain in place for the 16/17 tax returns, however from the 1st April 17 all clients will need to switch to one of these new packages for the 17/18 tax return onwards. 

Payments can either be made by monthly direct debit, which will be collected on the 1st of every month, from the 1st April 2017, or you can save 10% if you pay for a full year in advance.

How will I pay tax?

HMRC is not planning to change the current payment dates, however the 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 scrapped 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 on MTD please have a read of HMRC's Making Tax Digital Guide.

If you would like to discuss your requirements further or sign up to one of our new packages please get in touch today: email us on hello@chaccountancy.co.uk or call us on 01245 791164.

 

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