What does MTD mean for self-employed professionals?
In the latest UK200Group blog post Lee Sharman, Business Team Manager, Price Bailey discusses some of the key steps you need to take before Making Tax Digital comes into force next month.
What will Making Tax Digital mean for me?
With the Government’s new Making Tax Digital (MTD) regime coming into force in little more than a month, many businesses and independent professionals will have already taken steps to make sure they are ready to ‘go digital’ with their record keeping and VAT returns by 1 April.
However, if you have yet to prepare for the new regime – or have made a start, but are unsure exactly what the move will mean for you – here are some of the key things you need to know and do before the end of March.
What is Making Tax Digital MTD?
There are a number of
misconceptions when it comes to MTD. The main aim of this HMRC-led initiative is to modernise the UK’s tax compliance process. The new tax system will require affected businesses to maintain digital records. HMRC believe this will enable businesses and professionals to get their tax right the first time, while also reducing costs and errors.
Those businesses that fall within the MTD regime will need to maintain their accounting records digitally using compatible software and make the required submissions to HMRC electronically through software rather than uploading to the government gateway. The key point here is that assuming you will be able to continue keeping paper records or making submissions the same way you have done previously is not going to be possible for most businesses come the 1st of April.
Which businesses will be affected by the move to MTD?
The short answer is almost all, although not necessarily within the next six weeks. The 1 April deadline is for MTD for VAT and applies to compulsory VAT-registered businesses – including self-employed and freelance professionals and sole traders. These are businesses with taxable turnover above the £85,000 VAT threshold.
The Making Tax Digital rules apply from your first VAT period starting on or after 1 April 2019.
VAT registered businesses with a turnover below that threshold (i.e. voluntarily registered business) can opt into the MTD regime, but are not obliged to do so. However, they will need to monitor turnover and be ready to start complying if they reach the VAT threshold.
Mandatory compliance with MTD for VAT looks set to eventually be extended to all VAT registered companies, although this will not happen before April 2020 at the earliest. HMRC has also deferred compliance until 1 October 2019 for some more complex businesses, such as trusts, some not-for-profit organisations and charities, VAT groups, and traders based overseas; while very few self-employed professionals will fall into this category, some of your clients might, so its good to be aware of this six-month extension.
The MTD for income tax regime will apply to those who are self-employed or operating as part of a partnership. The Government has yet to make MTD for income tax mandatory (until it does, full details of the regulations will not be known), and the earliest compliance date for these businesses will be April 2020. However, the essential aims of the initiative – digital record keeping and electronic submission of returns – will remain the same.
What will MTD mean for me?
In the short-term MTD for VAT will bring three significant changes to the way your business operates:
•Digital record keeping: You will need to use MTD-compliant, third-party software to maintain your accounting and business records. Many of you may already keep your records using a computer-based accounting package, in which case you may notice very little difference – however it would be worth checking the system you use is MTD compliant with many software providers providing MTD functionality to only the most up to date versions. For those of you who don’t currently use an accounting system, there is a wide variety of
cloud-based accounting solutions available that can enable you to access your financial data and manage your accounts anywhere, anytime. Price Bailey also has its own cloud-based service offering –
MiPB – which is designed to take your accounting to the next level by offering MTD-Compliant cloud-based accounting with expert support from Price Bailey.
•Digital links between software: Under the MTD requirements data transfer or exchange between software programs, applications or products that make up your accounting system must be digital where the information forms part of the digital records. A ‘digital link’ is one where a transfer or exchange of data is made, or can be made, electronically between software programs, products or applications. I.e. without the involvement or need for manual intervention such as the copying over of information by hand or the manual transposition of data between 2 or more pieces of software.
As part of HMRC’s soft-landing approach, the requirement to have these digital links in place has been delayed until 01 April 2020 but is still worth considering if looking at new accounting systems.
•Changes to filing process: In order to make submissions under MTD, affected businesses will have to re-register with the MTD Government Gateway and link their software to their online account. Affected companies will not be able to file through their existing Government Gateway log on. However, this will remain active for businesses who are not within the requirements of MTD.
So will MTD bring benefits or just a greater burden?
While some businesses and professionals have expressed concerns about the changes, overall the move to digital record keeping and returns should be a positive step.
Those who have raised concerns have flagged up the added burden of preparing quarterly updates, apprehension over learning new systems and software as reasons for caution. The potential for significant teething troubles or a broken system has also been highlighted.
However, many businesses and self-employed professionals across all sectors are already using digital record keeping and cloud-based accounting and will notice little difference from the move to MTD. For those who aren’t, the move is an opportunity to improve overall record keeping and to maintain updated accounts. It should also mean that you won’t have to keep giving HMRC information which you have previously submitted, and real-time tax collection means you should have a clearer understanding of your ongoing tax position and be able to budget better for payments, spreading them in manageable chunks across the year.
What do I need to do now?
If you have already prepared for the transition to MTD, have your accounting software in place and are ready for the MTD age – then nothing. However, if you’re still unsure about which software would work best for you or your business; have queries about how to prepare your quarterly updates and make payments; or just have unanswered questions about how MTD could affect you and your business, then it’s essential to seek professional advice.
To find out more, contact:
Lee Sharman
Business Team Manager, Price Bailey
lee.sharman@pricebailey.co.uk
020 7382 7434
07786020696
Tags: UK200
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