The government has introduced a new term: Making Tax Digital for Business, along with yet another acronym. MTDfB has different start dates for different types of business with unincorporated businesses being the first to see significant changes in how they record and submit their transactions.
The general principles of how MTDfB will operate have been decided by the government. Much of the detail will be set by Regulations which we expect to see this 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.
A DTA is an online portal where a business can see all of its tax details in one place and interact with HMRC digitally.
When will MTDfB start?
Many parts of the business community, and committees of the House of Commons and the House of Lords, have protested the changes. In spite of this, the government, has made only a relatively small concession to the start date which was announced in the Budget.
Unincorporated businesses and unincorporated landlords with annual turnover:
- above the VAT threshold (£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 of MTDfB.
Companies (and partnerships with a turnover above £10 million) do not need to comply with the requirements until April 2020.
What will quarterly accounting mean?
There are no definitive answers to this question at present.
The government has made some concessions from its original proposals including:
- businesses that use a spreadsheet to record data will be able to continue to do so. However, they must ensure that their spreadsheet meets the necessary requirements of MTDfB. We anticipate this to involve combining the spreadsheet with software.
- the requirement to keep digital records will not require businesses to store digital images of invoices and receipts. HMRC originally proposed that digital records not only include a record of each item of income and expense but also evidence of each transaction.
Each quarter, once the business has compiled all the relevant information into the software, the data will feed directly into HMRC systems. The information HMRC receives 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.
What is the ‘End of Year’ statement?
The End of Year statement will be similar to the online submission of a self-assessment tax return. However, a business may be required to submit the statement sooner than it would a tax return. Businesses will have 10 months from the end of their period of account or 31 January following the tax year (the self-assessment tax return deadline) if sooner.
Making Tax Digital for partnerships
In regard to partnerships, the government has proposed staying with the concept of a nominated partner who is responsible for the requirements of MTDfB for the partnership. Partnerships will be obliged to ‘push’ each partner’s share of any profits (or losses) through to their digital tax accounts as part of the end of year activity.
An HMRC pilot system for reporting income and expenses is due to be trialled online with some businesses and their agents. We will continue to monitor the MTDfB project and let you know about important developments that may affect you.
If you have any questions or concerns about MTDfB, please get in touch. Contact one of our offices or enquire online.