HMRC announced Making Tax Digital (MTD) initiative in the March 2015 Budget and has released on 15 August 2016, 6 consultation papers on various aspects of this proposal. The consultation period runs until 7 November 2016. Here is a quick summary of what we have learnt in the form of Q&As.
What does Making Tax Digital or MTD mean?
From April 2018, how you interact with the tax system is changing. It will become increasingly digital and most businesses, the self-employed and landlords will need to use software or apps to keep business records and to update HMRC quarterly.
Who does MTD apply to?
At this stage the consultation documents only apply to sole traders, landlords and partnerships. Further consultation papers are expected to be released that relate to Limited Companies later in the year. Clear Books will update you when that happens.
What does the consultation process mean?
The consultation documents explain in more detail how MTD is expected to work inviting small business owners and accountants to comment on the proposals. We encourage you to have a look at them and respond as you think necessary. This is an opportunity to give your views on the proposed changes. Ways to respond to HMRC are provided at the bottom of the page.
Are there any exemptions for MTD?
MTD consultation confirms that all unincorporated businesses and landlords with annual incomes below £10,000 will be entirely exempted from the new obligations. It also proposes to defer implementation for a limited group of businesses and landlords with annual incomes above that threshold. HMRC are consulting on the appropriate income threshold for exemption and on how eligibility for deferral should be defined.
How is information under MTD sent to HMRC?
Businesses will need to send this information from their accounting software such as Clear Books that links to and also updates their digital accounts with HMRC. HMRC suggests that much of this information could be collected using the software to automate accounting entries, with the software summarising and submitting the totals to the tax department every quarter.
Are there any significant simplified processes under MTD for small business and partnerships?
The main emphasis seems to be on an aspiration to lift the current £83,000 turnover threshold on the cash basis of accounting, which is currently permitted by HMRC, to £166,000.
Cash basis allows businesses to account for their income and expenses when they actually receive payment or when they actually pay for an expense while on an accrual basis expenses are matched with the related revenues and/or are reported when the expense occurs, not when the cash is paid. There is also the suggestion that businesses could stay on this basis of accounting up to a turnover of £300,000. This is with a view to simplify the tax calculations for small businesses.
Will this change how I pay tax?
Yes, as well as submitting accounting data, businesses will also pay their Income tax, National insurance and Capital gains tax (or obtain refunds) on a quarterly basis.
When is MTD happening?
MTD is planned to commence in April 2018 for unincorporated small businesses and for Limited companies from April 2020.
What is Clear Books’s role in MTD ?
Clear Books Product team will be working closely with HMRC to make the software fully compliant for MTD for sole traders and partnerships by April 2018 and then by April 2020 for Limited Companies.
How do I respond to the consultation documents?
There are 3 ways you can respond.
- Email to: firstname.lastname@example.org
- Write to:
HM Revenue and Customs
Business Income Tax consultation
Small Business Team
100 Parliament Street
3. Complete the online form linked from this overview of the consultation documents.