Time to get ready as tax goes digital

RETURNS: Making Tax Digital will spell the end of the annual tax return

Making Tax Digital (MTD) is the plan to digitise the tax system with every individual and business in the UK having their own tax accounts, bringing the end of the annual tax return for millions.

Businesses, the self-employed and landlords will have to prepare and submit quarterly updates to HMRC using the digital service.

Those with a turnover below £10,000 will be exempt from quarterly reporting under the current proposals, while partnerships with turnover over £10 million will be able to defer their MTD obligations until 2020.

The first quarterly return will be the first quarter of the accounting period that begins after 5 April in the year applicable to that person or business.

The four quarterly submissions will be due one month after the end of the relevant quarter and there will be a final year end update at which point all relevant tax adjustments can be made.

At the end of the accounting year, businesses are likely to have 10 months to complete any annual tax adjustments needed via an End of Period Statement (EoPS), which will be completed online.

Taxpayers will also be required to make a final declaration – the MTD equivalent of a tax return.

The final declaration will report income (and deductions) not reported via the quarterly updates and it is expected it will have to be submitted by January 31.

All quarterly and year end submissions will be compulsory – however, for the first 12 months no penalties will be charged to allow taxpayers to adapt to the new system.

Quarterly updates will be needed for each trade or business undertaken by the taxpayer.

If self-employed traders also have a buy-to-let they will have to submit quarterly updates for their self-employed business and another set for their letting business.

Separate EoPS will also be required for each trade or business.

The most important consideration is how you keep your records and whether this could be improved to make the transition to MTD easier.

HMRC will require all businesses and landlords to maintain their records in an MTD-compatible digital format.

The quarterly updates, end of period statements and final declarations will all have to be filed online through MTD compatible software.

Cloud based software providers are working to make sure they will be MTD compatible.

If you currently use one of these packages, it is likely the only changes you will need to consider will be the frequency with which you update your books and records.

It is imperative that your data is kept up to date to ensure that you are able to meet the MTD quarterly reporting requirements timeously.

The days of doing your books annually, or handing them to your accountant once a year, are nearing an end.

If you do not currently use a cloudbased accounting package, it will still be possible to keep your records using alternative software such as excel – however, for any but the most simple businesses, we would recommend considering cloud-based software packages.

...for any but the most simple businesses, we would recommend considering cloud-based software packages DOUGY AGNEW

Picture: Getty Images. The days of the annual tax return are numbered.