It is HMRC’s aim to eradicate the tax return as we know it by 2020, replacing it with a system called Making Tax Digital for businesses (“MTDfB”).
What is MTDfB?
Businesses, self-employed people and landlords will be required to provide HMRC with updates on their financial data quarterly using online accounting software and make voluntary staged tax payments throughout the tax year.
When is MTDfB being launched?
Businesses, self-employed people and landlords will be required to start using the new digital service from:
April 2018 - if they have profits chargeable to Income Tax and pay Class 4 National Insurance contributions (NICs) and their turnovers are in excess of the VAT threshold
April 2019 - if they have profits chargeable to Income Tax and pay Class 4 NICs and their turnovers are below the VAT threshold
April 2019 - if they are registered for and pay VAT
April 2020 - if they pay Corporation Tax Those with turnover under £10,000 are exempt from these requirements. Those in employment who have secondary income of more than £10,000 per year through self-employment or property will also be required to use the digital service.
How can businesses get ready for MTDfB?
Most of the big players in bookkeeping software such as Xero, Sage and Quickbooks are tailoring their packages to ensure they are MTDfB compliance in advance of the first deadline. Selecting which is the most appropriate software for your business however can be a complex task and you should seek the advice of an accountant with experience of helping their clients select the best software for their needs.
Will I incur costs to become MTDfB compliant?
Some business owners are concerned about the cost of introducing bookkeeping software to their business.
Whilst undoubtedly there will be a small implementation cost associated with introducing software, the major software providers all now offer low cost, monthly subscription, cloud based software which means that there is no initial capital outlay required.
Is there an upside to MTDfB?
Business owners should not overlook the additional benefits that introducing cloud based bookkeeping software packages can bring. Key benefits can include:
• easy to use;
• multi-user access from any location;
• daily direct bank feeds meaning you always have visibility of real time financial information;
• improved cashflow by reducing how long it takes to invoice your customers and keep on top of overdue invoices;
• the ability to operate paperless sales, purchases and expenses; and
• better collaboration with your accountant to gain regular and timely advice.
In summary, whilst MTDfB may seem like an additional layer of compliance, I believe that it is an opportunity to improve business processes and getter better visibility and control of your business.
For more information contact Steve Mitchell, Partner, email@example.com