Making Tax Digital
Making Tax Digital – a new HMRC initiative
HM Revenue and Customs (HMRC) is introducing a new reporting regime, Making Tax Digital, which will have a significant impact on small businesses. One of the main purposes of the regime is to crack down on tax evasion. HMRC have stated that there are no plans to change the payment dates of taxation.
The introduction is being phased in over several years, with the first businesses being affected by1 April 2019.
Once fully implemented the new rules will apply to all businesses with sales in excess of £10,000 per year, including property rental businesses with gross rents in excess of £10,000.
The exact details of what will need to be reported and the start dates of the new system have yet to be finalised. However what we do know is that, once fully implemented, all businesses with sales in excess of £10,000 will need to maintain records digitally. Handwritten / manual records will not be acceptable. Maintaining records on excel will be satisfactory, provided that the excel records are ‘synced’ in with HMRC’s system. This means that it will not be possible to key information directly onto HMRC’s online system.
Businesses will need to submit accounting returns to HMRC within 30 days of each quarter end and will need to submit annualised figures within 9 months of the year end. Owners of businesses will also need to submit a tax return to HMRC. Businesses which are VAT registered will be required to submit their VAT returns under the Making Tax Digital regime.
For a significant number of small businesses, who currently have handwritten records, or who rely on their Accountant / Bookkeeper to produce annual accounts, the impact of the changes will be significant. Perhaps the businesses which will be impacted upon most will be those unincorporated businesses which currently do not use Accountants or Bookkeepers.
As a result of the new system, it is likely that there will be a major shortage of good bookkeepers.
The first businesses to be affected by the change will be VAT registered businesses, with a turnover of £85,000 or more. They will be required to submit VAT returns under the Making Tax Digital system from April 2019.