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Making Tax Digital – An Update

Further to our last communication in November regarding the Government’s plan to digitise and modernise the tax administration system, we are now able to confirm that further information has been published which sets out the Government’s intentions and proposals

Draft legislation in relation to Making Tax Digital was published on 31 January 2017, the final version of which will be included in Finance Bill 2017. The process was also confirmed during the 2017 Budget in March, which thankfully provided a 12 month delay to smaller businesses and landlords under the VAT registration limit.

DIGITAL RECORDS

From April 2018 landlords and businesses (including individuals and partnerships) with gross income exceeding the VAT threshold (£85,000 from 2018/19 tax year) will be required to keep digital records in software compatible with HMRC’s systems. Those who are not registered for VAT will start mandatory quarterly reporting from April 2019.

All tax payers will be required to categorise the information kept electronically and the categorisation will depend on whether the business is a sole trader, property business or a partnership and whether or not the business operates on a cash basis.

As previously announced, HMRC have no plans to provide free software, but they expect developers to offer free software to entities with more straightforward affairs.

QUARTERLY SUMMARIES

When MTD is introduced, it will be mandatory for the digital records to be submitted to HMRC electronically.

The quarterly summaries will include “any information relevant to calculating profits, losses or income of the business for the relevant period, including information about receipts and expenses”. At the end of a “relevant period” a final declaration will be required by the earlier of:

  • 10 months after the end of the period to which the statement relates (usually accounting period)
  • 31 January following the tax year in which the relevant period ends.

The final submission will also include the entity’s other sources of income (employment, pension, investment, details of capital disposals, adjustments) some of which HMRC expect to already hold in their pre-populated digital accounts.

TIMELINE – KEY DATES

The MTD record-keeping and reporting requirements will come into effect in stages, as follows

Type of entity Date when obligation to comply with MTD arises
Businesses and landlords with gross income above VAT threshold April 2018
All businesses and landlords with turnover above £10,000 April 2019
VAT reporting April 2019
Corporation tax and Partnerships with turnover above £10m April 2020
EXCLUSIONS

The rules confirm that Trustees of charitable trusts and unauthorised unit trusts are exempt from Making Tax Digital.

Also, those who genuinely cannot comply with the new digital recording keeping and quarterly submissions requirements due to their  individual circumstances such as age, disability, religion or geographical location will be excluded from the system.

HOW CAN WE HELP YOU?

Please rest assured that where we represent you, we will be offering assistance with the transition to Making Tax Digital.

You will be contacted in due course and well in advance of the date you have to join MTD, with our proposals to help you through this period.

Regular updates on the subject will be available on our website.

Please contact Adela Cebotari at adela.cebotari@rayneressex.com or Mark Moore at mark.moore@rayneressex.com if you have any questions regarding MTD.