MTD is one of the biggest changes to the administration of the tax system in a generation.
It is being introduced from April 2019 and is a completely new method of tax administration. It will significantly change the way that businesses and landlords keep their accounting records and report their income and expenses to HMRC.
Why is MTD being Introduced?
The main focus of MTD is to reduce the “tax gap”, which is the difference between the total amount of taxes collected by the Government compared to what is due.
The tax gap is caused by a number of factors, including taxpayer error (whether deliberate or through innocent mistakes). MTD is tasked with closing that tax gap to reduce errors and allow HMRC to better police the tax system.
The Government are also contending that businesses will make administrative savings once MTD is implemented. This remains to be seen.
What is MTD?
MTD will introduce the concept of digital quarterly reporting of income and expenses for relevant taxpayers (see below) through MTD compliant software. HMRC have now conceded that spreadsheets can be used to report under MTD, but it will require use of ‘bridging software’.
Each trade or business undertaken by the taxpayer will require separate quarterly reports, therefore if a self-employed taxpayer also has a buy to let property, or the self-employed taxpayer has two trades, they will have to submit a set of quarterly reports for each self-employed business or another set of quarterly updates for their letting income.
The quarterly reports must be filed with HMRC within one month of the quarter end.
From April 2019 – Impacts VAT reporting by all VAT registered businesses (including sole traders, partnerships, limited companies, trusts, charities) with turnover above the VAT threshold (currently £85,000).
From April 2020 (at the earliest) – Impacts MTD for income tax and corporation tax. MTD for VAT may also be extended to all VAT registered businesses, i.e. those voluntarily registered. Further details have yet to be announced.
Despite the Government insisting MTD will go live from April 2019, the pilot scheme has not long been launched. This factor alone brings a huge amount of uncertainty to the project, and doesn’t leave, in our opinion, sufficient time to iron out any problems encountered through the pilot scheme.
It is entirely possible the Government will decide to postpone the introduction of MTD for another year, but at present this isn’t something which we can rely on, and we have to plan for an April 2019 introduction date.
You can be rest assured that Hallidays will be monitoring the pilot scheme and any associated representations made during the process very closely. This will ensure that we are fully up to speed on the MTD process meaning we can support our clients through this significant change to the tax system, allowing them to plan with confidence for the new regime.
How can Hallidays help?
Please contact us on 0161 476 8276 or email email@example.com to discuss how these changes will affect your business and receive expert advice.
Posted 13th June 2017
Updated 13th December 2018