The end of hand written records! (or possibly even no records)
In April 2015 HMRC laid out plans for every business and person to report their tax affairs to HMRC quarterly. Since then there have been major discussions and consultations between HMRC and the accountancy institutes. Despite major misgivings and deep objections from the accountancy world as a whole these appear to have fallen on deaf ears at HMRC.
HMRC gave notice at the end of January 2017 that they are going forward with the plans largely unchanged. HMRC believe that this will ensure fewer errors in supplying information to them. Typically with HMRC projects, the Governments estimates of costs for this change to businesses appear to be massively understated and this has been challenged in the House of Commons.
So what is changing?
HMRC propose that from April 2020 every sole trader, partnership and landlord who owe tax or Class 4 NIC (we can only assume this will be based on 2017 tax return information) must report their accounts (income and expenses) to HMRC every three months. There can be no estimates and there will only be 30 days from the end of the quarter to submit the information. There will be fines for failure to comply. Every submission will require a final end of year update within 10 months of the year end or by 31st January the following year, whichever is sooner.
People whose main income is employment or pensions and there secondary income (not profits) is under £10,000 will currently be exempt.
As HMRC will receive your financial information (accounts data/rental income/employment income/bank interest etc.) quarterly, this may result in the end of the requirement to submit an annual self-assessment tax return.
VAT registered business with a turnover above the VAT registration limit will commence quarterly reporting from April 2019.
Limited Companies who have not been included by this point will then be brought online from April 2020.
HMRC’s final hope is that every individual and business will then pay the tax that they owe quarterly, after the submission of the MTD report (but this is a voluntary option at the moment).
What do HMRC expect?
The final proposals are still not clear, but essentially, HMRC are expecting the “customer” (that’s you) to report your income and expenses (following the correct taxation rules) every three months online using digital software, without exception.
What does this mean in reality?
While some of you will relish the opportunity to communicate your affairs regularly with HMRC, we know that most of you will be horrified. We know from talking to all of our clients that most of you are far too busy for this kind of burden.
So for any of you worrying about these changes, we are here to help. We will be offering a full MTD quarterly reporting service. Until we know what will be involved exactly, it will be difficult to get an idea of costs but once we know more we will let you know, but the more you help us the cheaper we can make it for you. We will work with each of you to find the most appropriate system for you. What we do envisage is that for most businesses this will involve the ability to download your bank information directly into software.
HMRC have confirmed that they will still accept Excel Spreadsheets as a way of keeping your records digitally, however, this data will then have to be transferred into some form of software or directly onto HMRC’s online system in order to make the MTD report. You can continue to use a spreadsheet, but inputting into the other software will require more work on our part and as all of our fees are largely time based this will cost more.
Why not visit the software section of our website to learn more about the options available to you.