A new term has been invented by the government to reflect the central role of businesses in the Making Tax Digital project – Making Tax Digital for Business – and a new acronym – MTDfB. There are different start dates for businesses however. Unincorporated businesses, including landlords, will be the first to see significant changes in their recording and submission of business transactions.
The government has decided how the general principles of MTDfB will operate. Much of the detail will be set by Regulations which are expected to appear in the summer.
Under MTDfB, businesses will be required to:
maintain their records digitally, through software or apps
report summary information to HMRC quarterly through their ‘digital tax accounts’ (DTAs)
submit an ‘End of Year’ statement through their DTAs.
DTAs are areas where a business can see all of its tax details in one place and interact with HMRC digitally.
When will this start?
Despite protests from many parts of the business community, and committees of the House of Commons and the House of Lords, there was only a relatively small concession to the start date announced in the Budget.
Unincorporated businesses and unincorporated landlords with annual turnover:
above the VAT threshold (which has been set at £85,000 from 1 April 2017) will need to comply with the requirements of MTDfB from the start of accounting periods which begin after 5 April 2018
at or below the VAT threshold but above £10,000 will need to comply from the start of accounting periods which begin after 5 April 2019.
Businesses and landlords with turnovers under £10,000 are exempt from the requirements. Companies (and partnerships with a turnover above £10 million) will not come within MTDfB until April 2020.
What will quarterly accounting mean?
This is the still the big question to which there are no definitive answers at present. The government has made some concessions from its original proposals including:
if businesses are using a spreadsheet to record data, they will be able to continue to use this for record keeping, but they must ensure that their spreadsheet meets the necessary requirements of MTDfB – this is likely to involve combining the spreadsheet with software
the requirement to keep digital records will not include an obligation to store images of invoices and receipts digitally. Under the original proposals, HMRC envisaged that a digital record would include not only a record of each item of income and expense but also evidence of each transaction such as copies of invoices and receipts.
Once all the relevant data for a quarter has been compiled into the software, the business will then feed this data directly into HMRC systems. The information that will be sent to HMRC will be summary data for the quarter, not all income and expense items. Businesses will have one month from the end of the quarter to submit the update to HMRC.
What is the ‘End of Year’ statement?
The End of Year statement will be similar to the online submission of a self-assessment tax return but may be required to be submitted earlier than a tax return. Businesses will have 10 months from the end of their period of account (or 31 January following the tax year – the due date for a self-assessment tax return – if sooner).
In respect of partnerships, the government is proposing to stay with the concept of a nominated partner who is responsible for the requirements of MTDfB for the partnership but then partnerships will be obliged to ‘push’ each partner’s share of any profits (or losses) through to their digital tax accounts as part of the end of year activity.
HMRC are starting a pilot of reporting of income and expenses online with some businesses and their agents. As your accountants, we will continue to monitor the MTDfB project and will continue to assist you with your tax affairs.