Following our attendance at an HMRC Making Tax Digital (MTD) update last night, we thought it might help to post an update on Making Tax Digital (MTD).

The first thing worthy of note is that the acronym MTD was last night lengthened to MTDFB – Making Tax Digital For Businesses.  MTD is definitely happening.  And it is definitely starting in April 2018.  However, it will not be fully fledged come 1st April 2018 .

HMRC will start with businesses – ie. self employed individuals.  But “businesses” also includes those with some rental income – which might come as a surprise, as many individuals who have income from rental properties may well not consider themselves as having a “business”.

Digital reporting will involve a quarterly update, with annual reconciliation.

Payment deadlines will not be changed and HMRC assures us that there are no plans to request a quarterly payment on the back of quarterly reporting, but it will provide a quarterly tax calculation estimate.  But HMRC have advised that it will not represent an increase in compliance activity.

HMRC gave us a little red-herring by suggesting that spreadsheets will be an acceptable way of recording income and expenditure, but actually they will provide the basis from which to summarise income and expenditure to key into specific software for digital reporting.

HMRC have not changed their stance on offering free software to facilitate digital reporting.  They are looking to the software houses to provide software solutions.  Both Sage and Freeagent representatives were at the workshop we attended last night and both companies intimated that there would be some form of free version of their software, but probably with very limited functionality and little or no support.

The quarterly reporting required will be a summary of income and expenditure – potentially three line accounts – rather than detailed information.  However, you will still need to keep prime records, in the event of an inspection by HMRC.

In the March budget 2017, HMRC are expecting the Treasury to confirm the threshold required for digital reporting.  A suggestion is £10,000 threshold but this is to be confirmed.  The Treasury are also expected to make an announcement regarding the deferral of businesses from digital reporting.  So we shall see what is in store for us soon!

Finally, as from April 2017, HMRC are doing public beta testing, inviting specific individuals (targeting those who normally submit paper records) to try MTD from April 2017.

We would strongly recommend our self employed clients to change over to digital accounting software with effect from the start of their new accounting period during 2017, so that they are prepared for MTD.

We are happy to give any advice and guidance but would recommend that clients take advantage of the many free software trials available with most software companies.  What an accountant perceives as “easy to use” software, is not necessarily what an individual would see as easy to use.  So it is important for you to decide what works best for you and your business.

As always, any queries, please ring us on 01670 528416.