What is MTD?
Making Tax Digital (MTD) is the name of the government’s plan to ‘simplify’ the tax system and take advantage of technology in order to help people get their tax right and get information to HMRC more promptly. The initial plan was that all companies, self-employed people and landlords earning over £10k would have to report to HMRC 5 times a year instead of once and do so through software rather than through the HMRC website. This was to start from 2018 for sole traders, partnerships and landlords but neither the accountancy industry or the software industry felt that such a fundamental change was possible in such a short period of time so there has been much speculation about if and when the government would amend their plans. When the snap election in June was announced the entire plan was shelved until the results of the election were final and then we would hear the improved plan. Last week, the government announced most of its plans for MTD are to be delayed until at least 2020 so while they didn’t reveal many specifics, we at least have more time to prepare.
How will it affect you?
Businesses with turnover over the VAT threshold (currently £85,000) will have to keep their VAT records digitally from April 2019 but as VAT is reported quarterly anyway there shouldn’t be any major changes other than for those who currently do their VAT through the HMRC website. All reporting will need to be done through ‘Making Tax Digital software’ and while this software doesn’t exist yet, the major companies like FreeAgent have insisted that they will be ready before the changes come. Other businesses will not be asked to keep digital records, or to update HMRC 5 times a year until at least 2020. So in reality it looks like many businesses will have no extra responsibility for the next 2-3 years as many already keep digital records or are not VAT registered.
What do you need to do to prepare for 2020?
If, like the majority of our clients you’re a FreeAgent user then there’s nothing to worry about as they already make it very easy and safe to store your records in the cloud and they will have the functionality to do the reporting to HMRC by the time it’s essential to do so. If you’re not already using FreeAgent yet then it’s probably a good idea to consider the decision at your next year end. Those using offline software or manual accounts will have to change how they operate and we would certainly recommend getting used to this prior to being obligated to do so because there will always be mistakes and teething issues when making such a fundamental change and it’s best to get these out of the way before HMRC are penalising businesses for these mistakes. At this point the very few specifics we have about how MTD will work are based on information the government gave us before the election so it’s difficult to say what will remain and what will be thrown out but we’re keeping a close eye out for any further updates from the government and we expect a more detailed plan in the upcoming Finance Bill, in September 2017.