Taxing times for businesses

By Peter Reynolds

 The UK tax system will soon undergo a fundamental shift which will have huge implications on almost all businesses and landlords. 

From April 2018 all but the smallest of businesses and landlords will have to move into the digital age under HM Revenue and Customs’ ‘Making Tax Digital’ (MTD) programme. 

In short this will involve businesses and landlords keeping their accounting records on software packages and making quarterly uploads to HMRC. Although initially there are no compulsory changes to tax payment dates, this will surely follow. 

MTD is set to apply to all but the smallest of businesses and landlords (currently those with gross incomes under £10,000), and quarterly ‘updates’ will have to be sent to the Revenue direct from the software, as well as the normal annual return. 

It will, unfortunately, represent a significant additional time commitment and cost for virtually everyone. 

 

More detail: 

• There are no changes to tax payment dates at present – although voluntary payments may be made. It appears HMRC’s intention is to be able to require tax to be paid quarterly in line with the updates – or even more frequently. 

• The quarterly updates will be summaries of the transactions in the quarter – although, as they will have to come from specific software packages, it seems likely that the next stage will be the reporting of each and every transaction. 

• The basics will not be changed; the detail may be. There have already been some significant alterations made to the proposals since they were first put forward some 15 months ago. 

• The final version of MTD is due to be announced by the Government early in 2017 with the first quarterly updates being for the period from 6 April 2018 to 5 July 2018. This means that for some people there will be only 12 months in which to get everything in place.

 

Our comments: 

• A recent survey carried out by the Institute of Chartered Accountants showed that 75% of businesses do not currently maintain their accounts electronically using accounting software - they use paper records, computer spreadsheets, etc. Indeed, many businesses and landlords do not own a computer, or have very limited broadband connectivity. 

• Accountants and business representatives have tried to get the Government to alter their approach here (as part of Dyke Ruscoe & Hayes’ efforts we had a one-to-one meeting with our MP) - but without success. It is clear that the changes will happen, whatever the cost to taxpayers; failure to comply will just lead to penalties sufficient to ruin a business. 

• What will the Revenue do with the data? Whilst it is in summary form it clearly has limited use. Once each transaction is reported it will be possible for the Revenue (using the sophisticated software it already holds) to tie those transactions up with the other party’s records, making sure that nothing has slipped through the tax net.
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What you need to do: 

• Many businesses and landlords will need to computerise their records for the first time. We have investigated and trialled the software options and so can advise on what options will give rise to the least cost and inconvenience for clients. 

• Although HMRC have indicated that free software will be available for some purposes anyone computerising for the first time will have to expect to pay an annual subscription cost for the software. 

• In addition if businesses and landlords want to keep their time down to a minimum, they may need to consider using some of the new automation tools that will read bank statements, invoices, etc so they can be added to the computer records automatically. 

Peter Reynolds is based in the Ludlow office of Dyke, Ruscoe & Hayes, where he is a director