MTD is the gradual digitisation of tax calculation and collection by HMRC. Up-coming changes include:
VAT registered business with turnover below the VAT registration threshold of £85,000, who have not joined MTD for VAT voluntarily, will be required to join from the start of their first VAT accounting period which begins on or after 1 April 2022.
The start date for MTD for Income Tax Self-Assessment (ITSA) has been put back by one year. It will now apply to sole traders and landlords with income of more than £10,000 from 6 April 2024. This will involve the submission of quarterly digital reports, and an end of period statement and final declaration.
MTD for ITSA will not apply to general partnerships (i.e., those without corporate partners) until 6 April 2025.
MTD for companies will not apply before 1 April 2026.
PLANNING POINT: In all cases, MTD will require that businesses and landlords keep records in a suitable digital format. We recommend that affected concerns contact us as soon as possible if they do not presently meet this digital requirement. Although the implementation for income tax and corporation tax is not of immediate concern, the process of selecting and implementing suitable software should not be rushed. And there are significant benefits in accessing real-time data from a commercial point of view, as well as meeting future MTD regulation.
For more information, visit our website at www.nhllp.com
A study carried out by the Federation of Small Businesses (FSB) has showed that small firms are losing £25 billion per year as compliance costs and time lost to dealing with tax admin soar.
The FSB study found that the government’s Making Tax Digital (MTD) initiative has ‘significantly increased costs and admin burdens for small firms’. The business group is seeking to ensure MTD delivers on its potential to improve productivity and profitability amongst small businesses.
It found that the average cost of compliance for a small firm participating in the MTD programme totalled £4,562, which is considerably higher than the figure of £2,960 for those yet to migrate to the new system.
‘Small businesses are fully behind the government’s vision for a high skill, high productivity, low tax economy,’ said Mike Cherry, National Chair of the FSB.
‘With costs soaring and the Budget approaching, it’s now time to see the policies that will get us there.
‘Reducing the huge amount of time and money lost to tax bureaucracy would free up billions for investment, upskilling and digitalisation. We’ve always said that – rolled out in the right way – MTD could mean productivity gains over the long-term.’
For more information, visit our website at www.nhllp.com
The first step – Planning your tax affairs to cater for changes to Income Tax reporting from April 2024
Most VAT registered traders will already be submitting their VAT returns using software that links with HMRC’s Making Tax Digital (MTD) technology. From April 2024, the long awaited – and much deferred – adoption of MTD for Income Tax will be implemented. From this date, individuals, with property or trading income which together create £10,000 turnover or more, will need to submit quarterly, digital returns to HMRC and an annual year-end report.
Step One – Time to embrace the digital age
If you still record your accounting transactions using manual systems, or rudimentary spreadsheets, you have just over two years to convert to using approved software. Whilst this may seem like plenty of time, the transition from using manual records to recording your property or other business income using approved accounting software does involve a number of challenges.
The benefits of a digital approach
Presently, we are taking your manual records (or spreadsheets) and analysing the data to enter in your annual self-assessment tax return. From April 2024, this information will need to be uploaded on a quarterly basis and in a format that links effectively with HMRC’s MTD servers.
Which means that the days of recording transactions manually are numbered…
However, aside from meeting the need to upload data to HMRC, there are a number of practical benefits to recording your accounting transactions using approved software. If you have a buy-to-let property business you are probably totting-up rents received and expenses on an annual basis. By recording the receipt of rents and payment of expenses as they happen a whole new world of financial information becomes available to you in real-time. For example, you can:
view profit statements for each property,
set up links with your business bank so transactions are automatically synced with your account’s software,
record improvements to each property to set off against any taxable gains when you sell a rented property.
With the challenges we all face due to the COVID pandemic and the present supply issues, having your finances recorded in a digital format will provide you with real-time information to respond to these challenges as they happen.
Beta test our recommended solution before April 2022
We would like to support you in this process. We can help you select and set-up the best-fit software in good time and hopefully demonstrate a range of advantages for your business activities as well as meeting any future reporting changes HMRC may throw at you.
If we can get you set-up before April 2022, we can help you capitalise on these benefits and achieve your first step to readiness for the coming MTD for Income Tax revolution. And you will have the information for your 2022-23 tax return at the touch of a button.
For more information, as ever, visit our website at www.nhllp.com
Making Tax Digital – what does it mean for you? Making Tax Digital is a government initiative that aims to digitalise the UK’s tax system. Not sure what MTD means for you and your business? Here we have detailed what you need to know.
What is Making Tax Digital? The aim of the Government’s Making Tax Digital initiative is to: ‘…make it easier for individuals and businesses to get their tax right and keep on top of their affairs’ It aims to make tax processing in the UK: ‘…more effective, more efficient and easier for taxpayers to get their tax right.’ Its goal is to use compatible software (see below) to manage your tax affairs with HMRC, in a simple way.
What is ‘compatible software? While it’s possible to continue to use your spreadsheets, you will need to do this in conjecture with some ‘bridging software’. Many businesses will choose to more comprehensive software, like Xero. We can help you with this. These tools use the data from your day-to-day business activity to build an accurate picture of your business tax data in real-time, highlighting possible errors and offering prompts for information that might otherwise be overlooked. Once the software has compiled the relevant data, you can submit it directly to HMRC, via a computer or smartphone. HMRC has stated: ‘…users will get the maximum benefits from MTD – fewer errors, increased productivity and better financial planning – by using dedicated MTD software’
Making Tax Digital: the story so far The first major step of MTD was rolled out on 1st April 2019. This requires all VAT-registered businesses in the UK with a turnover above the VAT threshold to file VAT returns using MTD-compatible software and to store financial records relating to VAT digitally.
What’s next for Making Tax Digital? As the rollout of Making Tax Digital continues, this is what is happening next.
Making Tax Digital for VAT The extent of Making Tax Digital for VAT will expand in 2022. VAT-registered businesses with a taxable turnover below £85,000 will need to follow Making Tax Digital rules for the first VAT return on or after April 2022.
Making Tax Digital Income Tax Making Tax Digital for Income Tax will be introduced in 2023. This will require self-employed businesses and landlords with annual business or property income above £10,000 to follow the rules for MTD for Income Tax from their next accounting period starting on or after 6th April 2023. We will be happy to explain what the continued rollout of Making Tax Digital will mean for you and your business in further detail.
As you are aware, these deadlines are fast approaching so action needs to be taken now before it is too late. Nunn Hayward is experienced to deal with the changes coming into effect and our specialist team can set up your cloud accounting software now. Whether we deal with this on your behalf, or you attend a training session to learn how to use it yourself – we can tailor our services to your business needs. Together we can ensure full compliance and ease come 2022, with the transition to digital as seamless and hassle-free as possible.
How we can help
If you do have any questions, or concerns, regarding the transition to MTD then please do not hesitate to get in contact with us.
For more information, or to speak to a dedicated team member, contact us on 01753 888211 or email info@nhllp.com and we can discuss further.
The UK’s current research and development (R&D) tax relief regime offers valuable support to companies but could be improved, according to a survey carried out by the Institute of Chartered Accountants in England and Wales (ICAEW).
The ICAEW’s survey found that the R&D tax relief regime could be improved by switching to regular periodic payments; incorporating it into the wider subsidy system; and by offering support tailored to specific industries’ needs.
Survey respondents outlined a desire for ‘more regular support closer to R&D investment spend’, as opposed to a one-off payment after the completion of the tax return process.
Respondents also suggested that the R&D tax relief regime could be aligned with the forthcoming Making Tax Digital for Corporation Tax (MTD for CT) initiative. This would allow claims to be made digitally every quarter, alongside the required MTD reports.
Additionally, the ICAEW’s Tax Faculty highlighted the need to update the definition of R&D used in the regime in order to ‘acknowledge the technological and commercial reality of the 2020s’.
HMRC is urging businesses to register for Making Tax Digital for VAT (MTD for VAT) before the 7 August VAT filing date.
HMRC stated that ‘many of the 1.2 million businesses affected by MTD for VAT will be required to submit their first quarterly return using compliant software by 7 August’. Firms paying by direct debit must register by 27 July.
Under MTD for VAT, businesses with a taxable turnover above the VAT registration threshold (currently £85,000) must keep some records digitally, and must submit their VAT returns via an Application Programming Interface (API).
According to HMRC, around 10,000 businesses are registering for MTD for VAT every day, and more than 600,000 have signed up in total. Nearly 400,000 submissions have already been successfully made using MTD software.
‘Now is the time for businesses with an August quarterly filing deadline to sign up and join the hundreds of thousands already experiencing the benefits of MTD,’ said Theresa Middleton, Director of MTD at HMRC.
‘During this first year, we won’t be issuing filing or record-keeping penalties to businesses doing their best to comply.’
MPs have criticised HMRC for the long wait times experienced by taxpayers looking to get through to Making Tax Digital for VAT (MTD for VAT) helplines.
Many taxpayers have reported that they have been kept waiting on the phone for long lengths of time when seeking help in regard to MTD for VAT. Others stated that they have been cut off by HMRC when attempting to call its MTD for VAT helpline.
Jon Thompson, Chief Executive of HMRC, responded by saying that HMRC is ‘refining its support offer in response to feedback from customers and agents’. HMRC also stated that it is ‘working hard’ to bring waiting times down and improve performance.
Mr Thompson said: ‘MTD represents a significant change for some businesses and their agents. We are committed to delivering these changes in a way that works for all.
‘Our support model is designed to guide customers to the most appropriate help for their particular needs; whether through HMRC, a software developer or their agent. Our HMRC offer ranges from basic support, such as signposting, to online guidance for digital services, webinars and . . . videos, through to more intensive one-to-one support.’
A survey carried out by Thomson Reuters has revealed that businesses are investing significant amounts in new tax technology, such as Making Tax Digital (MTD) software.
The survey, which was put to 438 tax teams, revealed that 98% of respondents intend to invest in tax technology in the next 12 months. 28% intend to increase their spending on technology, whilst 38% expect spending to remain at its 2018 level.
Many firms reported that their decision to increase spending on tax technology was driven by the introduction of such initiatives as the automatic exchange of tax data, and Making Tax Digital for VAT (MTD for VAT).
‘This interest in new technologies indicates that tax departments are recognising that the deployment of tax technology can help increase efficiencies, reduce human error and deliver a consistent and manageable way of addressing . . . new tax regulations,’ said Steve Smith, Proposition Lead for Corporates at Thomson Reuters.
‘Compliance is in the midst of a revolution, and looking forward we can expect to see more regulatory attention to the process and governance, rather than the end number. In a digital world, the tax authorities will easily be able to validate the output. Tax teams need to prepare for this shift now.’
With Making Tax Digital for VAT (MTD for VAT) set to take effect from 1 April, HMRC has warned UK businesses that the registration procedure will take up to seven days to complete.
MTD for VAT will apply for businesses which have a taxable turnover above the VAT registration threshold (currently £85,000). As part of the initiative, businesses must keep some records digitally, using ‘functional compatible software’. This means a ‘software program or set of compatible software programs which can connect to HMRC systems via an Application Programming Interface (API)’.
In recently published guidance, HMRC stated that businesses that pay VAT by Direct Debit cannot sign up to the MTD for VAT scheme in the seven working days leading up to, or the five working days after, sending a VAT return.
In order to sign up to MTD for VAT, businesses will require their Government Gateway user ID and password, alongside their VAT number.
Once firms have registered, HMRC will send a confirmation email within 72 hours. Businesses are urged not to submit their VAT return until they receive the confirmation email.
The government has provided guidance on the matter – this can be found here.
Chancellor Philip Hammond’s second Spring Statement was delivered against a backdrop of political turmoil, following the voting down of Prime Minister Theresa May’s Brexit withdrawal deal.
Despite describing the economy as ‘remarkably robust’, the Chancellor offered a clear warning on the potential impact of a no-deal scenario, which he said would put progress on the public finances ‘at risk’ and cause ‘significant disruption’ to the UK economy.
The latest forecasts from the Office for Budget Responsibility (OBR) revealed mixed news on the economy, with the OBR revising down its previous UK growth forecast for 2019 from 1.6% to 1.2%. Meanwhile, the forecast for government borrowing has also been revised down from £25.5 billion to £22.8 billion, with the Chancellor heralding rising wages and a strong employment market.
However, Mr Hammond emphasised the importance of a smooth Brexit transition in securing economic stability, pledging that a £26.6 billion ‘deal dividend’ would be made available to help boost the economy, providing that an agreement can be reached. The Chancellor also confirmed that a full Spending Review will conclude alongside the 2019 Autumn Budget.
Turning to other issues, the Chancellor announced new government investment in the UK’s physical and digital infrastructure, technology, housing and the environment, together with a bringing forward of the £700 million reforms for business apprenticeships previously announced in the 2018 Autumn Budget.
The Chancellor’s statement also confirmed that the government will apply a ‘light touch’ approach to penalties under its new Making Tax Digital (MTD) regime, which comes into effect on 1 April 2019 for VAT-registered businesses. The government will not mandate MTD for any other taxes or businesses in 2020.
Other measures announced include free sanitary products for secondary schools and colleges in England from the start of the next school year, and an additional £100 million fund dedicated to tackling the recent surge in serious violence and knife crime.
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