Could it save us all time & money or more red tape for the small business owner? What's it all about?

News & blog » Making Tax Digital (MTD)

September 6, 2016

Mike Foster

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The government are committed to reducing burdens for taxpayers and building a transparent and accessible tax system fit for the digital age. During the Budget 2015, the government set out the vision for a transformed tax system and its intentions to revolutionise the reporting process for taxpayers.

As part of our training for new and existing hospitality business owners, we cover your financial management, record keeping and the tax returns you are expected to complete. Without doubt, this is the biggest impact on the tax return system in years and one that at first glance may have complications for business owners.

Due to the scale of the changes, HMRC have issued a collection of six consultations around specific elements of the Making Tax Digital (MTD) reforms. These initial consultations will run until 7th November 2016.

It is not a case of whether this will happen, but more about how. We therefore encourage you to get involved with the consultations and keep an eye on how the developments will impact you and your business.

The initial reports under the banner of ‘Making tax digital’ suggested ‘digital tax accounts’ an online platform enabling taxpayers and businesses to see all of the information HMRC is holding about them. For example, employment income, pension income and bank / building society interest, which will all be prepopulated to the digital tax account.

Businesses will then be required to use software or Apps to keep records of their income and expenditure. This data will eventually feed straight into the digital tax account to build your tax returns. The suggestion is that taxpayers will need to update and approve the figures in their digital tax accounts every quarter. So therefore signalling the end of the annual tax return, although an annual summary in line with your year end is suggested.

How will this perhaps impact businesses in the Hospitality Sector? Will it require a change in the way you keep your financial records perhaps needing to switch from cash books to software or app usage? How do you currently manage tips? How easily will the online systems allow for the receipt of deposits in advance? How will the return allow for your accounting adjustments such as waste that currently provides a more accurate picture of your profit?

MTD could certainly impact certain groups in different ways such as individuals, landlords, start up businesses and Non-VAT registered businesses, who have not been used to quarterly returns. It is also very likely to impact the cashflow of many individuals and businesses.

From April 2018, and phased in by 2020, businesses (initially unincorporated), including everyone who is self-employed and those letting out property, will update HMRC at least quarterly where it is their main source of income. HMRC and other parties, such as software companies, are suggesting that the returns will be possible with an app or software.

More details and the proposed timeline from HMRC can be read by clicking here

MTD is possibly one of the hottest topics around right now in the hospitality sector and business in general. This is primarily due to the uncertainty of what this may mean in the future. Could it save us all time and money or is it another mountain of red tape for the small business owner?

What is the next step?

Last month, HMRC published six consultation documents on MTD. The six consultations set out detailed plans on how HMRC propose to make tax digital and to simplify the tax system.

The six consultations initially issued are around the follow subject areas:

  1. Bringing business tax into the digital age – covers record keeping software, providing updates, end of year activity and exceptions
  2. Simplifying tax for unincorporated businesses – including changes to basis periods, extending cash basis accounting and reducing reporting requirements for unincorporated businesses
  3. Simplified Cash Basis for unincorporated property businesses –  including non-resident landlords and those with furnished holiday lettings
  4. Voluntary Pay As You Go –  considering if taxpayers can pay what they want, when they want, subject to the normal payment on account rules
  5. Tax administration – covering the compliance including penalties and interest
  6. Transforming the tax system through the better use of information

HMRC are keen to obtain views and opinion, so have produced a document titled ‘An Overview for small businesses, the self-employed and smaller landlords’, that provides an easier way to respond to the consultations. You can read more by clicking here

We encourage you to get involved with the consultation and look to influence the direction of MTD considerations in the future.

Contact details

  1. E: info@arrochar-associates.co.uk
  2. Tel: 07968 534034