EXECUTIVE REPORT
Digital tax will be taxing
By the end of March 2019, UK businesses will need to have prepared for what many consider the biggest change for years in how they deal with HMRC - and, as Adam Bernstein reports, it has nothing to do with Brexit.
The changes, which will affect every single transaction a business makes, come from what HMRC calls ‘Making Tax Digital’, or MTD. Jason Piper, senior manager for tax and business law at the Association of Chartered Certified Accountants, says that it has been around three years since the then minister, David Gauke, announced bold plans for ‘The Death of the Tax Return’, which became ‘Making Tax Simple’ before finally settling on ‘Making Tax Digital’. Piper says, “The underlying goal is to transform the whole UK tax system, both HMRC’s internal IT infrastructure and the way that taxpayers engage with it.”
However, there have been problems with the rollout that have been compounded by unprecedented political developments. The result is that the initial plans to force virtually all businesses to keep their records for profits taxes digitally from 2018 were abandoned; now all but the barest bones of MTD have been put on hold to free up resources for Brexit. Nevertheless, organisations will have much to consider from next April. HMRC will have MTD in place for VAT for all businesses above the compulsory registration threshold of £85,000, whether they report monthly or quarterly, or whether they are net payers or reclaimers of VAT. Income and Corporation Tax will follow at some point.
much control HMRC’s processes will have over how you run your business. Under online filing, you submit your VAT return to HMRC in their prescribed digital format so it’s easy for them to process. But you’re in control of how the records are kept that help you work out the nine numbers you need for the return. Under MTD, it’s not just how the nine figures reach HMRC that’s legally regulated; it’s how they’re calculated, and the format (electronic) of the records that support it which is laid down in law.” Every transaction will need to be recorded digitally (on a spreadsheet or in accounting software) and those records have to automatically drive the return calculation.
Some businesses might need to start using specialist accounting packages.
The first step is to simply establish if HMRC expects MTD to apply - that is, the business is turning over more than £85,000 per year. Next, if the business already uses an accounts software package, then it will probably support MTD filing and record
keeping - the key is to check without delay. Some suppliers are asking customers to move from desktop licences to cloud subscription services, which might be more expensive.
As Jason Piper notes, MTD won’t apply to those businesses not (yet) registered for VAT: “Even if they do subsequently register for VAT, they’ll be outside of the regime until 2020. Unfortunately, that doesn’t necessarily mean they can relax.”
Unprecedented change
For VAT, MTD alters how online filing works and makes a huge change to how businesses prepare for that submission. HMRC’s existing web portal will close for MTD filers and instead they’ll need to use specialist software to create and submit their return. “But the biggest, unprecedented change,” explains Jason Piper, “is in how
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“If you don’t use any digital tools,” says Jason Piper, “then you’ll need to start, and quickly do your own research to find a suitable product.” He reckons that there will be an official HMRC tool, but businesses might do better to search out resources that accountants use.
Accountingweb.co.uk offers reviews on products. Spreadsheets will still be fine for the basic record keeping, “But you’ll still need access to a filing package as well, known as ‘bridging software’. In a variation on the current practice of phoning your accountant every time with the nine figures, you could post [suitably encrypted] on a USB stick, or email a spreadsheet with all your records (in the right format) once a quarter. Their software could do the rest, but it’s likely to cost more than the current equivalent.” Of course, there is scope for things to go wrong, and it will mean an accountant doing more, which will be reflected in their bill.
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