Making Tax Digital
The Government has confirmed that it plans to implement ‘Making Tax Digital’ from April 2018. For those affected this will involve information being uploaded quarterly, electronically, to their own ‘Tax Digital’ account with HMRC.
Although more details have been announced, we are still awaiting final confirmation in relation to some issues.
HMRC plan to collect what information they can from third parties (PAYE from employers, interest receipts from banks etc.) and will upload this themselves onto an individual’s account.
Self-employed and landlords
Making tax digital will become a reality for some from 6 April 2018. It will eventually affect all those who have self-employed or rental income of more than £10,000 per annum. (This is the proposed limit below which returns will not be required, this limit is still to be confirmed though).
The Chancellor announced in his March 2017 budget that there will be an exemption for the first year – all individuals with income of less than the VAT registration threshold (currently £83,000) will be exempt until April 2019.
Quarterly returns will be required. The quarters will depend on your accounting year end and will fall 3, 6, 9 and 12 months after that date. If you have a year end of 31 March, your quarter end dates will be 30 June, 30 September, 31 December and 31 March.
If your year end is 30 November then your quarter end dates will be 28 February, 31 May, 31 August and 30 November.
If, like many, your year end is 5 April, your quarter end dates will be 5 July, 5 October, 5 January and 5 April.
The return will have to be submitted within one month of the quarter end date and the information required will depend on your level of income. If your income is below the VAT registration threshold (currently £83,000) then only 3 lines of information will need to be submitted, total income, total expenses and profit. If your annual income is above that level, details will need to be provided of total income, expenses (broken down into the headings used on the annual self-assessment return) and profit.
In addition to these 4 quarterly returns, an annual summary will also need to be provided, a total of the 4 quarters (where final adjustments can be made to the figures). This summary will need to be submitted within 9 months of your accounting year end or 31 January, whichever is earlier. In reality, the 31 January deadline will apply to those who have a 5 April accounting year end.
Other information will also need to be submitted (or uploaded onto your account). This will include other relevant figures that HMRC have not been able to obtain from directly from third parties, certain investment income, capital gains etc. Details have yet to be released as to the deadline for submitting this information.
Although we are not in favour of this new system and the additional burden it places on the taxpayer and accountants, we need to look at the positives….
You will need to keep your records up to date. This in turn means that we will be in a position:
– to advise earlier of anticipated tax liabilities.
– to suggest potential tax saving opportunities, such as making additional payments into pension schemes or advising on the best time to purchase the new computer that you need.
Tax payment dates remain the same, and tax will be due every 31 January and 31 July.
What you will need to do:
– keep your records up to date.
– be aware of your quarterly return dates (we will remind you).
– submit the information we request to us on time.
What we will do
– keep you informed.
– remind you in good time of deadlines.
– submit the returns for you.
To ensure that we are fully up to speed with how the system will work in practice, we plan to take part in the trials that HMRC will be running from 6 April 2017.
Limited companies will be subject to Making Tax Digital from April 2020.
Charities (but not their trading subsidiaries) will not need to keep digital records.
As and when there are further developments, we will keep you informed.
Graham Berry FCCA – March 2017
The content of this article is intended for general guidance only, specific advice should be taken for specific situations . No responsibility for loss by any person acting or refraining from action as a result of this article can be accepted. We cannot assume legal liability for any errors or admissions this article may contain.