The Courier & Advertiser (Perth and Perthshire Edition)
End of an era for tax returns
Full implementation of the forthcoming Making Tax Digital (MTD) regime by HMRC will potentially mean the end of the annual tax return for millions of people.
The MTD vision set out by HMRC is to make the tax system for businesses operate much more closely to “real time” with quarterly reporting, as opposed to the current system of reporting information on tax returns and paying liabilities long after the end of the tax year.
Due to various delays such as a lack of developed software capable of dealing with MTD on both sides, the plans for the implementation of the MTD regime have been pushed back from the original timetable; some of the most difficult elements have been deferred until “at least” April 2020. MTD will radically change the administration of the UK tax system.
By way of a recap, under MTD most rural businesses, self-employed and landlords will be required to keep track of their financial affairs digitally. They will be required to use digital tools, such as software or apps to keep records of their income and expenditure and get more organised and into the habit of keeping proper books and records.
The idea of quarterly reporting is intended to provide HMRC with an accurate snapshot of the business trading performance, with summary details submitted throughout the year of turnover and expenses.
However, without the usual accounting adjustments (accruals, prepayments, stock and tax allowances being amongst others) being added in to the mix; there is a real concern that the actual position will be very different in reality. The inclusion of quarterly stock figures in particular for farming businesses will be time consuming.
The seasonal nature of farming means that quarterly updates are unlikely to provide meaningful business management information or figures from which a tax liability can be accurately estimated.
For rural businesses the poor internet connection speeds and lack of broadband infrastructure in rural areas have been cited as reasons for a phased introduction of the MTD plans.
The main initial focus is now on VAT only under MTD which will be compulsory from April 2019 for all businesses above the VAT threshold of £85,000. If you have a VAT registered business and operate a manual bookkeeping system now is the time to consider moving to computerised records. It is also assumed that the previous announcements on MTD quarterly reporting for direct tax will largely remain in place from April 2020. Further announcements on both are expected.
There is a temptation to put MTD to the back of our minds following the revised implementation timetable, however, businesses need to be digitally ready when the time comes. All rural businesses must start to move over to a fully compliant digital record keeping system whether it is based on Cloud Accounting or desktop software applications. It will take several years to plan, design, implement and test new systems so that they are fit for purpose.