Making Tax Digital, April 2018 – What effect will it have on your business?
With the usual perfect timing, HMRC released the results of their consultation process into ‘Making Tax Digital’ at the end of January. Just when the tax returns needed to be in. Smoke and mirrors? Left hand not knowing (or maybe knowing) what the right hand is doing? In any case it is worth taking a look at the consultation document online here:
If you haven’t got the time I’ve put together some of the salient points below. Many thanks to Richard Whitelock of Garbutt & Elliott Accountants at York for sending through some very helpful information too.
It was expected that the start date of April 2018 would be put back. HMRC however seem keen to keep to that date so the ‘switch on’ date is only just over a year away. As to the logistics as to how small businesses keep account of their financial information there were some key points:
- HMRC originally planned for businesses with a minimum turnover of £10,000 per annum to be included in ‘Making Tax Digital’. This seems too low to many and so the threshold has still to be decided. With such a low turnover and still no clarity it would make sense for all businesses to be prepare for the April 2018 ‘switch on.’
- Using spreadsheets for record keeping will be compatible with ‘Making tax Digital’. Spreadsheets must meet necessary requirements and this may involve combining the spreadsheet with software.
- Businesses eligible for three line accounts (income, expenses and profit) will be able to submit a quarterly update with only these three lines of data.
- HMRC promises free software to businesses with the most straightforward affairs (likely unincorporated, no employees, turnover below the VAT threshold). How you get this software is still a mystery however. If I hear I’ll let you know.
- Digital record keeping does not require that all invoices must be stored digitally. It may still be wise to have a system of dealing with invoices however. The shoe box will no doubt still have a place in the economy.
- Businesses will be given 12 months grace before penalties are applied.
- HMRC intend to pilot digital record keeping and quarterly updates with some business, starting April 2017.
- Some small businesses may be able to defer their entry. What the qualification for this deferment is, or how long it will be deferred for has not been decided yet.
- The budget in March should provide a little more clarity and by the time the Finance Bill 2017 goes through Parliament everything will hopefully be a little more clear.
It is always good to be informed but tax is like many things in that a little knowledge can be costly if used unwisely. Speak to your accountant so that you know what is happening and what may happen. Making Tax Digital launching in April 2018 is only the beginning of the digital revolution for business. Business Rates are targeted to go the same way with expectations of this happening at the soonest in 2020.