In this day and age of ever advancing technology, where some businesses can literally operate from smart phones with banking and the ability to pay bills all done electronically, the benefits of operating digitally are well established.
It can therefore be no surprise that HMRC have an ambition to be one of the most digitally advanced tax administrations in the world; making tax management more effective, efficient and submissions more accurate. HMRC’s positioning is that Making Tax Digital (MTD) will eliminate paper-based tax administration allowing businesses more time to focus on their business opportunities.
The transformation of the UK taxation system is well underway and has seen HMRC working with leading accounting software providers such as Free Agent, QuickBooks and Xero, to name just a few, in preparation for the transition to more frequent submissions of income and expenditure.
The Rollout Approach -Pilots
MTD is a massive change for individuals, businesses, agents and the tax accounting industry in the UK.
A number of pilot schemes have been running to test the processes and functionality ahead of the main rollout.
Self-employed businesses and landlords have been invited to join the pilots, where income and expenditure statements are sent digitally every three months.
Live Dates
The following table identifies the live (and proposed live dates) for MTD, and who those dates will impact.
| Date | Who | How |
| April 2019 | Vat Registered businesses with turnover above the VAT threshold. | MTD -Compliant Software – record of VAT transactions and submission.
(If you currently submit using the HMRC’s own site – note this will no longer be available) |
| April 2020 | All other VAT registered businesses i.e. those voluntarily VAT registered with VAT-able turnover under current threshold of £85,000 | MTD -Compliant Software – record of VAT transactions and submission.
(If you currently submit using the HMRC’s own site – note this will no longer be available) |
| April 2020 onwards – the date will be confirmed after the 2019 rollout | Corporation Tax and Self-Assessment
Sole-traders, partnerships, companies |
MTD-compliant software or apps – keep a digital record of your financial transactions
MTD-compliant software or apps – submit your quarterly updates to HMRC for both income and corporation tax purposes |
As you can see from the above table, from the 1st April 2019 “VAT registered businesses with a taxable turnover above the VAT threshold (currently £85,000) will be mandated to keep digital VAT records and send returns using Making Tax Digital (MTD) compatible software from April 2019” the government website states.
What this means is that you must keep your business records digitally – the returns you send are created directly from those electronic records, which must be preserved in digital form for up to six years.
It’s important to note that the submissions will need to be made using MTD-Compatible software. The approved list of software providers can be found by clicking here.
Note however that the submission and payment deadlines are not changing for VAT.
From 2020 all businesses are expected to submit their income and expenditure returns quarterly. Though it should be noted that the deadlines for making tax payments isn’t changing. HMRC have a vision that information on items such as savings/investment interest, dividends, gift aid and so on will all be part of MTD – which marks the end of the tax return as we know it.
Exclusions
There are a number of groups that will be exempt from MTD, known as ‘digitally excluded’ including those who cannot use digital tools for reasons of religion, age, disability or remoteness. Charities will also be exempt – however their trading subsidiaries will not be. Unincorporated businesses and landlords with annual sales below the published threshold.
Changing The “Way We Do Things Round Here”
Whilst the concept of the paperless office has been around for many years, with the HMRC first proposing it back in the late 90’s/early 00’s through the modernising government programme – it has taken another 20 years to truly bring that to fruition for tax.
The challenge here is that it isn’t just one organisation that is changing, it’s actually a complete UK business culture change. This one initiative fundamentally changes the way ALL businesses perform their business administration.
And that is no small feat!
There are however precedents available to us of this type of change; think about the Equalities Act and the impact on people recruitment and management; consider Financial Regulation such as Treating Customers Fairly and how every financial firm had to change it’s working practices. MTD is potentially so much bigger and more impactful than these for small businesses.
There is a pattern with each of these types of initiatives which starts with confusion, chaos and uncertainty (just look at GDPR for a recent reference). So, you are not alone if you are experiencing this now. This is followed by a period of learning and adapting to the new ways of working.
Here are some simple suggestions to simplify the adaption to the required new ways of working with digital tax.
5 Simple Strategies You Can Use To Ease Your Transition
- If you are a new or recently started business, start adopting the digital approach right now. For more established businesses who work a paper-based system or are semi-paper based – review your working practices and how they align to the roles in your business. Changing the way people work may affect more than just their operational activities.
- Check in with tax professionals to identify if they can offer you an inclusive price for software access along with their services. It helps to keep the cost of the transition down.
- Cloud based software usually ensures that your admin support, employees, directors and accountants can have tiered access. For example, an employee can enter their expenses and mileage directly onto the system. Make sure you review your working practices as some of your support team may need to change the way they do things.
- Look for a solution that has an app for smartphones making it easier to scan receipts directly into your chosen system.
- Give yourself enough time to identify the right solution for you and your business. It may take time to train and get used to the software and the new ways of working.
Making Tax Digital may sound complex, however with the right approach and some guidance it will benefit your business, you will:
- Have a regularly updated “as-is” status in your business, potentially with regular reminders on your submission due dates
- Be able to have flexibility on the location of your business financial support services if you choose cloud-based software
- Save time and money (once you are over the implementation hump!)
- Be able to monitor your cashflow with much more ease