Since it first hit the financial news, the government’s Making Tax Digital (MTD) initiative has been surrounded by rumours, from what it actually includes and how it will affect small businesses to when it might take place. The recent election threw even more confusion into the mix, with changes to financial regulations being deprioritised in favour of other issues shortly before the election, only to have the government announce in late June that several finance bills will be introduced over the next years … but no one’s quite sure what they’re going to include.
If all this has your head spinning, you’re not alone.
More information on MTD could be announced as early as this summer, or we could be waiting a good long while for confirmation of the rollout. While it’s thought that MTD could take effect as early as 2018, right now things are still up in the air.
Hang on … what’s MTD again?
MTD is a HMRC initiative to make it easier for small businesses to keep track of their financial and tax obligations throughout the year. Rather than having to file one, onerous tax return at the end of the year, small business owners will be able to record their information digitally throughout the year, simply reviewing the information for correctness and confirming it with HMRC quarterly. This will not only help you avoid the yearly tax panic, it also makes it easier to avoid making mistakes, and makes the shock of an unexpectedly high tax bill a thing of the past.
It will all be done digitally, so you won’t have to worry about hanging onto receipts throughout the year or frantically shuffling through a drawer of expense reports, plus, HMRC will have all of your information handy in one place, so you won’t have to file the same data with multiple branches of government. And of course, you’ll be able to communicate directly with HMRC digitally, rather than having to ring up or wait for things in the post.
What does this mean for you?
When MTD does roll out, you may need to make some changes to the way you’re doing your finances. If you’re already using a digital accounting programme, you should be pretty well set — you should be able to simply import the data from your streamlined digital accounts into the MTD interface and be pretty much set. You will need to start paying Income tax, National insurance and Capital gains tax on a quarterly basis instead of annually, but this is actually really helpful. Now, instead of wondering what you’re going to be stuck with at the end of the year, you’ll have a clear picture of your financial and tax obligations throughout the year, so you’ll be able to budget and create financial projections much more easily.
On the other hand, if you haven’t been using a digital accounting programme, you may need to make some changes in the way you keep track of your finances. The MTD interface will require you to work with some type of digital accounting, but according to the January consultation documents on MTD, there will be a mix of free and paid-for tools you can use to do this.
So what’s the rollout schedule?
Originally, the rollout schedule looked something like this:
Late 2017: Taxpayers should be able to use MTD to get an overview of their tax liabilities and automatic adjustments to tax code help prevent issues with PAYE payments.
2018: Most businesses start using digital tax services quarterly.
2019: Businesses are generally using digital tax services, and may face penalties for not working under the MTD framework.
Of course, that was created in 2015 when the debate about MTD was just getting going, so things have changed since then. The timeline for MTD has been expanded and shortened a few times, but the latest guess is that it will likely roll out in 2018, but there will be a year’s grace period for businesses to start working according to the MTD, and things will still be considered to be in flux until 2020.
When will we know for sure?
The long and the short of it is, we just don’t know. While the Queen’s Speech did mention that there would be three finance bills over the next two years, including a 2017 Summer Finance Bill, details on what would actually be included in any of them were not forthcoming other than that there would be a focus on taxation for UK citizens living overseas, among other things.
While the rollout schedule for MTD is still very much up in the air, one thing is clear: businesses are going to need to go digital with their accounting sooner or later.
The majority of UK businesses are not prepared for MTD, and the last thing you want to be doing when it does eventually come down is scrambling to digitise your accounting while learning how the MTD interface works, worrying about penalties. So while we can’t give you the end-all, be-all answer on when MTD is going to start affecting your business, we can give one very good piece of advice: now’s the time to start digitising, if you haven’t yet.
It’s easy to get started, makes your financial management so much more streamlined, and is going to have to happen sometime … so why not now?
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