Making Tax Digital (MTD) is the new initiative from HMRC in order to bring tax affairs into the digital age. Ben Taylor, solicitor at Roythornes Solicitors, looks at what this involves and how businesses should prepare.
On 1 April 2019, HM Revenue & Customs (HMRC) is rolling out its new scheme called ‘Making Tax Digital’ (MTD). The aim is to make the tax regime more effective and efficient, as well as bringing the tax affairs of individuals and businesses into the digital age. Another example of a recent “switch to digital” is the Trust Registration Service which is now over a year old.
From 1 April 2019 VAT-registered businesses with a taxable turnover above the VAT threshold (£85,000) are required to use the MTD service to keep records and prepare VAT returns using MTD compatible software.
It is worth noting that certain VAT-registered businesses have had the new obligation deferred, but we understand that this applies to the minority. Also, MTD for VAT will not affect trusts and unincorporated “not for profit” organisations until October 2019. If this applies to you then now is the time to consider MTD.
One aspect which will affect smaller businesses is in relation to the turnover threshold. If your business operates below the threshold then you won’t move to the VAT MTD service. However, if you exceed this figure then registration is required; following which there’s no going back even if your turnover subsequently drops below £85,000.
It is therefore vital that small businesses keep on top of their turnover checks to see if the turnover exceeds the VAT threshold at the end of each month for the previous 12 months.
There is also a pilot program for Income Tax currently running, and when introduced, those obligations are likely to apply to the self-employed, partnerships and trusts. Our current understanding is that, once MTD for Income Tax has been fully introduced it will remove the need to submit an annual tax return. Instead the proposal outlines that taxpayers will submit quarterly reports to HMRC with a further two submissions to confirm annual figures and report all income for the tax year.
However, it won’t be until at least April 2021 that we see the MTD program introduced for other taxes. This has been delayed in order to allow the kinks to be ironed out in MTD and to give businesses time to adjust to the new system.
Moving to MTD and using compliant or bridging software may be simple for many firms, but for some – particularly smaller businesses that may be used to less formal record keeping and keeping less detailed records – it may not be so simple. For any business, preparation is key.
For some businesses, taxpayers may want to consider the MTD exemptions, if for example it’s not reasonably practical for you to be using digital tools. For others considering altering how their businesses operate so as to fall below the threshold or deregister, and particularly farming businesses, it is worth bearing in mind the effect this may have on a claim for Agricultural Property Relief or Business Property Relief on death.