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It’s Making Tax Digital Not Making Tax Difficult

Caroline Keenan

By Caroline Keenan

In this second article in our series looking at HMRC’s Making Tax Digital project, Caroline Keenan looks at what the project means for business

What is Making Tax Digital for business?

Making Tax Digital (or “MTD”) is a Government initiative that has been talked about for a number of years. MTD was first announced by George Osborne in the 2015 Spring Budget and is set to transform the tax system. The aim of MTD is to make tax administration more effective, more efficient and easier by the implementation of a fully digital system. MTD is the biggest change in tax administration in recent years. In particular it will change the way businesses are required to keep their accounting records and the way they report their income and expenses to HM Revenue & Customs (“HMRC”).

What are the requirements of MTD?

Under MTD the main requirement will be to maintain digital accounting records. Businesses must submit quarterly updates to HMRC and also provide an ‘end of year’ return – whether this makes it “easier” to maintain a business’s tax affairs is a matter of some debate.

Who does MTD apply to and when does it start?

The start date for MTD has been continually changing – based on the latest HMRC guidance the following applies, however, this may be subject to change:

  • Businesses with turnover greater than the £85,000 VAT threshold will need to keep digital records from April 2019, but for VAT purposes only;
  • Businesses with turnover greater than £85,000 will not be expected to report data quarterly to HMRC for other taxes until at least April 2020;
  • Any business/landlord can voluntarily keep digital records and report data quarterly to HMRC from April 2018; and
  • Businesses/landlords with turnover less than the VAT registration threshold (currently £85,000) will not be required to keep digital records or report quarterly to HMRC on a mandatory basis. While this reflects current guidance, it is widely anticipated that at some point in the future digital reporting will become a requirement.

What are digital records?

A digital record is a record of data for each transaction of the business. HMRC has stated that it will not provide its own software but it will ensure that basic apps and software products are available for businesses with the most straightforward affairs. However, it is envisaged that most businesses will be required to use more comprehensive third party software (e.g. Cloud based packages such as QuickBooks or Xero).

HMRC are aware some businesses currently use spreadsheets to record their data and have confirmed that they will be an acceptable form of digital record. However, users will need to ensure that the spreadsheet is able to meet all the necessary requirements of MTD and that it is able to be submitted to HMRC in a MTD compliant format.

It should be noted that filing a VAT return using HMRC’s website does not meet the MTD requirements and from April 2019 VAT registered business’s will have to submit their VAT returns via third party software which has a digital record, summarising each transaction in the period.

What will be the impact?

The roll out and impact has already begun. Individual taxpayers and businesses have access to a digital account that they can use to check their records and manage their details with HMRC. At the moment, businesses keep their accounting records in a variety of ways. With MTD, those individuals and businesses who maintain manual records will need to adopt digital records using software or apps.

Businesses and individuals will have to report summary information to HMRC quarterly through their ‘digital tax accounts’ and then make an end of year declaration through the same system. Unfortunately, it is clear that there will be a significant cost to taxpayers, and increased pressure on both advisors and businesses to meet five reporting deadlines during a year rather than one.

Is there any good news?

Yes, the rationale behind MTD is a good one. The ability to have a digital account with HMRC which deals with all the tax affairs of a business in one place is a welcome idea. The changes will also help improve the quality of record-keeping for businesses, reducing the likelihood of mistakes, and should help businesses to manage their affairs more effectively.

What can ASM do to assist with the transition and the new reporting requirement?

ASM have prepared a number of solutions for dealing with the transition to MTD and have invested in a range of MTD compliant software that can be used by businesses of all sizes and complexities. These solutions can be tailored to your needs and with our help we can assist you in meeting the requirements of MTD. MTD will transform the world of accounting and taxation but with our help we can ensure your business is focused on Making Tax Digital and not on making tax difficult.

Caroline Keenan is Tax Director at ASM Chartered Accountants

Email: caroline.keenan@asmbelfast.com