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Making Tax Digital – The end of the Tax Return

Making Tax Digital – For Tax HeadacheUnincorporated Businesses and Landlords.

At long last, H M Revenue and Customs have released their consultation documents on the future of the Tax System. With the consultation ending on the 7th November, that gives them just 16 months to take into account comments made, instruct external software companies as to what is required from them, and make sure their own systems can handle it, before it goes live in April 2018!

In Summary:
• Applies to Unincorporated Businesses and Landlords with gross income of £10,000 or more.
• Requirement to use Software or “apps” to keep business records.
• Quarterly updates to H M Revenue and Customs (or more frequently if the business prefers!).
• 9 months from year end date to submit End Of Year Activity report, allowing for annual adjustments to be made.

There had already been notification that Making Tax Digital would not apply to small businesses and landlords that had gross income of less than £10,000, but this has been confirmed to be all such businesses and landlords, and not just those with this as a secondary income. Business with a gross income of over £10,000 but below a yet to be determined threshold may have a 12 month deferment granted.

H M Revenue and Customs keep emphasising that Making Tax Digital is not going to result in 4 Tax Returns a year, or even 4 sets of Accounts. However, ALL Businesses and Landlords falling into the scheme will be required to use software or “apps” to keep business records and through which provide regular updates of information. They will not themselves be providing any free software, but will be requiring software houses to make free versions available – the functionality still to be decided on.

Initially it was reported that the quarterly updates would include details of all transactions made during the quarter. This has now been dropped, for a summary of each income and cost category. It is proposed that these quarterly updates will need to be filed within 1 month of the end of the quarter to which they refer. Failure to make the filing deadline will result in penalties (still to be decided on) being incurred. In the first year of Making Tax Digital they are however proposing a “soft landing”.

H M Revenue and Customs believe that 92% of small businesses have access to the internet and already use digital tools; whether that access is reliable enough, or fast enough is debatable.

They do however recognise that there will be transitional costs for Businesses and Individuals to bear, depending on the software option, and possible need to buy/update hardware. They will be consulting on possible Financial Support for some businesses.

The emphasis appears to be on Businesses doing their own bookkeeping throughout the year, using “apps” to take photos of invoices and receipts which will be processed by the software. How will this work in practice? How will the external agent providing a bookkeeping service fit into this new system?

We now have to wait for the end of the consultation period, and for H M Revenue and Customs to release the final detail, just as we head into Christmas and the Tax Return filing deadline looms!!

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