Making Tax Digital (MTD) is a government initiative to modernise HMRC’s tax system, with the aim of making the whole process of administrating tax simpler and more efficient. All of your tax information will be in one place (your digital account) and you will be able to pay tax based on your business activity during the year and you can upload and update your tax account in real time.
If you own a business, you are self-employed or a landlord and you pay income tax, national insurance, VAT or corporation tax then it is quite likely you will be affected. This means you will be required to keep track of your tax affairs digitally using MTD compatible software, and to update HMRC at least quarterly via your digital tax account. Eventually this will abolish the annual tax return. This will be the law and there will be penalties for non- compliance.
You will need to open and log into your digital account. Everyone will be allocated one through the current Government Gateway. Then you will need to ensure your accounting software can update this account at least quarterly. For most businesses this means a move away from desktop and onto cloud based accounting software.
You are required to maintain your business records electronically and to provide updates of information to HMRC. You will be prompted to send summary updates directly to HMRC – quarterly updates will need to be submitted within a month of quarter end, and an end of year activity report will be due within nine months of the end of the accounting year.
As your accountant and tax agent, we can advise you on the software you will need and how to comply with the new quarterly reporting requirements.
MTD starts with larger unincorporated businesses for accounting periods commencing on or after 6 April 2018. There are various dates after this when other types of businesses have to comply.
We will be contacting all of our clients in 2017 to prepare you and get you ready for Digital Tax well in advance. In the meantime, if you want to discuss how this affects you and your business please contact us.