It seems pretty clear that HMRC have set the commencement dates for implementation of their Making Tax Digital for Businesses program. They say:
“…self-employed people and landlords will be required to start using the new digital service from:
- April 2018 for income tax and National Insurance contribution (NICs) purposes if your turnover is over the VAT threshold
- April 2019 for income tax and NICs purposes if your turnover is below the VAT threshold
- April 2019 for VAT purposes for everyone who is VAT registered
- April 2020 for Corporation Tax (CT) purposes for everyone who pays CT
Businesses, self-employed people and landlords with turnovers 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.”
Like all major changes to tax compliance, MTDfB will demand attention – a steep learning curve – and the opportunity to devise and sell new services to clients. Many small businesses that I have spoken to in the past few months were completely ignorant of the changes. My guess is, most clients will want to leave the grunt work associated with MTD to their advisor, the key is to ensure they appreciate the value of this extra work and don’t expect you to do it for pre-MTD fees.
I have written an MTD handbook, updated for recent changes, that sets out the MTD compliance framework and offers a few ideas for developing new services. I think there is plenty of scope to arrive at a win-win outcome.
In the introduction to the MTDfB handbook I say:
From April 2018, tax professionals will need to consider a number of far-reaching adjustments to their working practices. January 2019, could be the last time that small business clients can amble into our offices with their bag of bank statements and receipts for the previous tax year and expect that their filing and reporting obligations will be met before the 31st January deadline.
The reason for this is Making Tax Digital (MTD), which will probably come to be seen as one of the most radical changes to UK taxation practice since the advent of self-assessment (SA) in April 1996. Eventually, MTD will oust SA and will require taxpayers, and their agents, to change their approach to recording, storing, filing and uploading accounting data.
The ultimate aim of MTD, as the name implies, is to fully digitise the collection and reporting of tax-payers’ income and other tax-relevant information so that their liability to UK tax can be assessed and managed in real time. This is a formidable project, one that will stretch the resources of the UK’s small businesses, their advisors and HMRC. Digital accounting, already a flourishing industry, will be boosted by MTD. The developers at Xero and similar providers will be rubbing their hands together as all businesses, including buy-to-let landlords, will be required to submit quarterly accounting data by electronic upload to their tax account. The present timetable for full implementation starts April 2018 and is expected to be completed before the end of the current parliament’s term in 2020.
We have all suffered the January SA filing deadline for many years, but imagine that filing pressure multiplied by four! For example, HMRC intends to require clients with a 31 March (5 April) accounting year’s end date to upload accounts data for each quarter end date: 31 March, 30 June, 30 September and 31 December. The proposal is to give taxpayers a month to send the data. Accordingly, April, July, October and January will require practices who complete this upload for clients (with March year’s ends), to have additional resources on call every three months.
The stated objective of MTD is to dispense with the requirement to submit an annual tax return. All of a taxpayer’s financial data will be “pushed” to their personal digital tax account (PTA). In some respects, this makes good sense. At present, employers, pension payers, banks and other institutions inform HMRC of income (and where applicable, tax deducted), and this same information is then reported to HMRC by individuals via their SA filing. Under MTD, information will build during the course of the tax year, from third party data streams or by direct upload – by taxpayers or their agents – to the individual’s personal digital tax account (PTA). Accordingly, the need to report this same information, by submitting a return, will be unnecessary.
This does raise interesting processing issues for tax advisors. For instance:
- Accounting software, adjusted (according the consultation documents) for usual addbacks and allowances (CAs etc.) will drive a client’s liability to income tax and related NICs. Does this mean that our tax software is now redundant? Or will its future use be to duplicate a client’s PTA so we can check to see if HMRC’s stated position is correct? In any event, tax software per se will no longer upload tax data to HMRC, this will all be handled by accounting software. What on earth is going to happen to Iris, Sage and the rest of compliance software suppliers to the profession?
- Will Xero and other “bookkeeping” software providers take the opportunity that MTD offers to provide users (your clients) with formatted annual accounts, that can be generated at the click of a mouse and emailed direct to bank managers et al?
Preparing and filing tax returns, the provision of income tax estimates via our tax software, together with the preparation of annual accounts, are services at risk.
Many tech-savvy firms are already preparing themselves for the challenges and opportunities that MTD will open up. The report that follows takes a hard look at the changes tax professionals will need to embrace to avoid unnecessary loss of earnings and to capitalise on the opportunities to create new levels of client service.