Making Tax Digital

What specific details do we know?

HMRC has yet to provide specific details regarding the changes in April 2019 (VAT submissions) and April 2020 (Corporate MTD submissions), but we have been given further detail regarding the changes that come into play in April 2018.

As stated currently from April 2018, landlords, self-employed persons and partnerships will have to submit quarterly information to their MTD account.  If a taxpayer’s income is under the income tax threshold of £10,000 then they are excluded from the new changes.  In certain circumstances a business may be able to apply for an exemption, but this will be extremely rare.

For the rest of the entities that fall into the 2018 criteria, quarterly returns will need to be submitted by using either approve commercial software, free to use HMRC software or potentially the mixed use of spreadsheets and software.

Enclosed are details of the additional information that have been announced during the most recent consultation in January 2017:-

The use of spreadsheets

This was one of potential issues, which HMRC have partly solved. Businesses will continue to use spreadsheets for record keeping, but they must ensure that their spreadsheet meets the necessary requirements of MTD and taxpayers have been told that spreadsheets will have to be combined with some form of software.

Three line accounts

Currently if your business annual income is below the VAT threshold, you are eligible to use simplified ‘three line accounts’, meaning only income, expenses and profit need to be reported.  Under MTD, unincorporated businesses will be continuing to report in the same way.

Free software

Free software will be available to businesses with the most straightforward affairs. HMRC’s working assumption is that these businesses are likely to be those that are unincorporated, have income under the VAT threshold, and have no employees.
We have yet to see the free proposed software, but we can assume HMRC will offer at the very minimum the ability to:

  1. Generate and send quarterly updates to HMRC
  2. Access via smartphone and tablet devices
  3. Complete end of year activity to ensure compliance with MTD requirements
  4. Include arithmetical error correction
  5. Provide functionality that makes the software easy to use, such as digital capture of financial data.
  6. Enable information to be sent from HMRC to businesses about their tax liability.

Digital record keeping

HMRC has confirmed that although transactions will need to be stored digitally, a business can continue to keep paper copies of business transactions, although the use of free-to-use software could enable businesses to lead a paperless audit trail.

Quarterly updates

Businesses will be able to choose their periods of account and their update periods, although the basic requirements will be four quarterly updates a year. The time window for submission will be from 10 days before the quarter end to one month after.  For example, for a quarter ending 30 June 2018, the earliest a business will be able to submit is 20 June 2018 and the final deadline would be 31 July 2018

End of year activity

The deadline for finalising taxable profit for a period will be the earlier of:-
10 months after the last day of the period of account, or
31 January following the year of assessment in which the profits for that period of account are chargeable to income tax (the existing self-assessment deadline).
This finalisation could be done at the same time as the final regular update for the year is submitted, but for businesses making year-end adjustments or claims to reliefs, it is more likely to be done later.

Late payment penalties and interest

HMRC have stated that they expect to implement “soft landing” penalties as businesses acclimatise to the major changes.  At this point we do not know the full extent of the penalty regime as HMRC intends to consult on specific proposals during 2017.  We expect to be aware of these changes by July 2017.

As additional changes arise, we will update our website and provide specific blog posts in our new dedicated section:-

How can WHA help you?

We at WHA are fully knowledgeable of the proposed changes and have put together specific points regarding its timeframe, administration and how we can support you as our client.