Making Tax Digital For Business, What We Know So Far…
April 2018 – All businesses, sole traders and landlords with a turnover in excess of the VAT threshold (Currently £83,000) will have to submit quarterly digital records to HMRC.
April 2019 – All businesses, sole traders and landlords with a turnover in excess of £10,000 will have to submit quarterly digital records to HMRC.
How to send digital records to HMRC
All submissions to HMRC will need to be completed through an up to date accounting software package. HMRC have confirmed that they will not be releasing any software themselves for businesses to use. If however you meet the criteria of being below the VAT threshold, have no employees and use the cash basis to complete your tax returns, third party accounting software’s will be providing a version free of charge to submit your digital records.
What if I use spreadsheets to keep track of business records?
HMRC have confirmed that spreadsheets will be an acceptable way to keep your business records. This however, is subject to the records being kept in a specific format, which HMRC will detail at a later date. Although this is good news for spreadsheet users, a third party accounting software will still be necessary to submit the records to HMRC each quarter. It is likely that there will be a feature to upload your spreadsheet into the accounting software to send the data.
Will my financial year need to run in tandem with the tax year?
Although the implementation dates are at the start of each tax year in April, there will be no need to change your financial year. The quarterly returns will run alongside your financial year.
Do quarterly submissions mean I can’t do end of year accounting adjustments?
Although the quarterly submissions are being brought in to make tax digital for business, end of year adjustments such as depreciation will still be allowed for the final quarterly return. Although there is some leniency around putting through end of year adjustments, submitting three quarters of zero value returns with all the results in the final return will not be tolerated by HMRC and leave your business open to an investigation.
How do I prepare?
Although it is a year away (and in some cases 2 years), it is best not to leave everything to the last minute. It would be advisable to switch to an accounting system now to get used to using the system prior to the digital switch over. If you are unsure which system to use, make sure you contact your bookkeeper or accountant for advice. Alternatively, if you want to email Direct Peak at firstname.lastname@example.org we will be happy to point you in the right direction.
Making Tax Digital For Business – Summary
Making Tax Digital (MTD) is an initiative by HM Revenue and Customs (HMRC) in the United Kingdom to modernise the tax system and make it more efficient for taxpayers.
The initiative aims to digitise tax records and processes, making it easier for businesses to manage their tax affairs and reducing the administrative burden on both taxpayers and HMRC.
Key findings of MTD for UK businesses include:
- MTD applies to VAT-registered businesses with a taxable turnover above the VAT registration threshold of £85,000.
- Under MTD, businesses are required to keep digital records of their VAT transactions and submit their VAT returns using MTD-compatible software.
- MTD for Income Tax will be introduced in April 2023 for self-employed businesses and landlords with an annual business or property income above £10,000.
- The initiative is expected to result in a reduction in errors and inconsistencies in tax reporting, saving businesses time and money.
- However, there are concerns about the costs associated with implementing MTD, particularly for smaller businesses who may struggle to afford the necessary software and training.
Overall, MTD represents a significant change in the way that UK businesses manage their tax affairs. While there are some concerns about the costs and practicalities of implementing the initiative, it has the potential to improve efficiency and reduce errors in tax reporting.
Looking for business accountancy services
Direct Peak provides a dedicated business tax accountant, who will prepare your annual accounts and tax returns. They will be on hand to answer any tax queries you have.
Your business tax accountant will ensure that the company is set up in the most tax-efficient way and that you are claiming for all the correct expenses to maximise your earnings.