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Making Tax Digital – The Basics

HM Revenue & Customs (“HMRC”) are introducing their latest initiative to make the UK the “most digitally advanced tax authority in the world” called Making Tax Digital (“MTD”). This will have significant changes to how and when we all deal with our tax affairs as individuals and business owners. This will be a huge administrative burden for all small businesses & property owners and these changes will come in as early as April 2018 for some. HMRC see this as ultimately leading to the death of the annual tax return.

The main proposals include the following:

  • A requirement for all businesses and landlords to keep their records digitally.
  • Quarterly submissions of the business results to HMRC rather than just once a year.
  • The option for a taxpayer to pay their tax earlier should they wish to do so.
  • HMRC also plan to obtain and use information from third parties such as banks, employers and pension providers.

If you are a business or property owner and your annual income (not profit) is more than £10,000, you will need to keep your business records digitally, using either an electronic or cloud based accounting package that is capable of uploading certain information electronically to a HMRC Digital Tax Account (“DTA”) each quarter. This will mean the end of the ‘old style’ manual cashbooks that are still being used by some of you. HMRC are looking to transfer unincorporated businesses and landlords into the new digital system from as early as April 2018, although it was announced in the 2017 spring budget that smaller businesses and landlords with a turnover less than the VAT threshold of £83,000 will not have to apply the new rules until April 2019. It is expected that companies will transfer in to the new digital tax system from April 2020.

Each business will be required to upload a summary of its trading position each quarter, or more regularly if they choose to do so. HMRC will then use this information to estimate the self assessment taxpayers tax liability to help them budget and plan cash flows. It is unclear at the moment how detailed these quarterly uploads will be but it is expected that an additional final upload of information will still be required at the end of the accounting year to include the usual annual accounting adjustments.

Although HMRC have stated that tax will not be payable on the profits included on the quarterly uploads, you may be able to make voluntary payments on account from April 2018. However, a move to real time reporting suggests that tax payment dates will change in the future anyway.

This will be a massive change for many small businesses and something that we at Cooper Associates Accountants Ltd will be happy to help you with. There are a number of cloud accounting software packages available and we are an accounting partner with Xero. These software packages ‘talk’ to HMRC and it is expected that the quarterly uploads can be as simple as a press of a button direct from this software to the taxpayers HMRC digital tax account.

We offer training to help you get started if you are not already keeping your accounts on compatible software, or we can complete your bookkeeping for you. We can also assist with the quarterly uploads, once these are required and we will be able to prepare your year end figures for you so that you are ready to meet the new nine month filing deadline.

For more information please contact us at or call the office on 01823 218550 to arrange a free initial meeting.

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