Making Tax Digital – time to get ahead of the game

26th April 2017

The Government has removed the Making Tax Digital (MTD) legislation from the Finance Bill, despite announcing an updated timeline for the implementation of MTD just a few weeks ago. 

In light of the forthcoming General Election, the Finance Bill has been stripped back to core elements and is due to be debated in the House of Commons today. It is unclear whether the removal of MTD will result in changes to the implementation timeline, or simply a delay in legislation, with a second Finance Bill being prepared later in the year.

Whatever the outcome, we anticipate businesses will still be expected to switch to digital reporting on a quarterly basis, which could begin as early as April 2018. While we hope this latest change may result in more time for the implementation of MTD, taking steps to get digital ready early will give you greater flexibility and control when it comes to making the switch.

According to the timeline and policies set out in the recent Budget, from April 2018 digital record keeping and digital reporting will be required for all unincorporated businesses and landlords with income over the VAT threshold, with those turning over less than £10,000 from all activities within the scope of MTD being exempt. A welcome deferral of one year (April 2019) was announced for those businesses operating under the VAT threshold. 

Quarterly reporting means businesses need to be up to date with their records and ensure payroll, auto enrolment and VAT reporting is timely and accurate. If you haven’t already, the first step is to switch to cloud accounting which makes digital reporting much easier and will help streamline your bookkeeping, invoicing and VAT reports in the long term.

While the removal of MTD from the current Finance Bill could result in delays to the above timeline, by making headway now, you will have time to get used to the new requirements well in advance of your MTD compliance date. 

Understanding the thresholds

Different thresholds affect when businesses will need to comply with MTD according to the current timeline. 

The thresholds are based on combined income from all activities in the scope of MTD (including income from property), making it possible that non-VAT registered businesses could still be mandated into MTD from April 2018. For example, an individual with self-employed income of £50,000 and rental income of £40,000 would not be able to benefit from the one-year deferral announced in the Budget as their total turnover exceeds £85,000. 

Where an individual has multiple income sources, including partnership interests, the partnership turnover is considered separately.  As things stand, partnerships with a turnover exceeding the VAT threshold will need to comply with MTD by April 2018, with those under the threshold deferred until April 2019. 

Individuals with a turnover from self-employment of less than £10,000 will still have to comply with MTD if they also have income from property which takes their total income over £10,000.  However, provided the total turnover is below the VAT threshold, they are currently expected to come into MTD from April 2019.

Large partnerships with a turnover in excess of £10m are expected to come into MTD from April 2020. 

Cash basis accounting for traders (TCB) and landlords (PCB)

It’s wise to consider whether cash based accounting is the best scheme for your business. Where your cash receipts do not exceed £150,000, individuals, and non-mixed partnerships, who have a property business will have to use the new cash based accounting (PCB) of accounting from 6 April 2017, unless they elect to continue using Generally Accepted Accounting Practice.

The threshold for TCB is being raised to £150,000 from 6 April 2017 and the exit threshold has been increased to £300,000.  Qualifying traders need to elect for TCB to apply, whereas qualifying landlords will need to opt out – with PCB being the default option.

Other considerations include when your reporting periods should be and what support you will need from HB&O to ensure your quarterly reports are submitted accurately and on time.

Next steps

The implementation of HMRC’s MTD programme is proving to be unpredictable and we may yet see further deferrals or delays. We’re keeping in close contact with HMRC so we can keep you informed of the changes that will affect your business.

For more information about how you can prepare for MTD, or to book a cloud accounting demo, please email advice@hboltd.co.uk or take a look at our Making Tax Digital section.