“Making Tax Digital” is a new system of filing your tax data quarterly, and it will eventually replace the Self Assessment system.
In effect, you will have to file a quarterly tax return if you fall into one of these categories:
- self employed
And having filed all four quarterly tax returns, you will also be required to complete a fifth tax return with any year end adjustments (or simply to confirm that the earlier four were correct and that there are no year end adjustments). So that’s five tax returns every year, instead of one.
“Making Tax Digital” (or MTD for short) is being rolled out from 6 Apr 2018 and is currently being tested by a sample of taxpayers in a one year trial.
The timetable is staggered and looks like this:
- 6 Apr 2018 – landlords and any unincorporated businesses which are VAT registered (the self employed and partnerships)
- 6 Apr 2019 – any other self employed and partnership businesses earning more than 10,000 per year.
MTD will be extended further to include limited companies, probably from 1 Apr 2020 but no definite date has been announced.
This means from 6 Apr 2018 that landlords and unincorporated businesses will be required to:
- Maintain their records digitally, through software or apps
- Report summary information to HMRC quarterly through their ‘digital tax accounts’
- Make an end of year declaration through their digital tax accounts
You can set up a personal “digital tax account” now. It requires two factor authentication, so you will need a UK phone number which is capable of receiving an SMS text message each time you log in to your account. That also means that your accountant will be able to prepare records, but will not be able to submit them. They will be passed back to you for you to submit . . . five times per year!
We’d love to do it all for you, but it would be impractical for us to keep rows and rows of mobile phones and to do the logging in and the quarterly submissions! We’ve looked at using virtual mobile numbers from Nexmo and Twilio, but these services are barred from working with two factor authentication systems.
Hence, the emergence of the “Making Tax Difficult” meme!
A digital record is a record of data for each transaction of “the business”. The proposed minimum required data will be:
- Date rentals due and payment received date if using cash basis of accounting
- Rental value
- Invoice date and value for expenses
- expense category
- deducted amount/percentage for expenses (allowing for any duality of purpose)
We already use professional software which does this, but HMRC expect all businesses and landlords to possess and to use their own software. Digital records can be maintained using software which will be available from third party software providers. HMRC have confirmed there will also be some products which are free of charge.
If these “free products” are anything like HMRC’s free payroll program then they will have limitations. For example, HMRC’s free payroll program will generate all the reports that HMRC wants, but it does not generate payslips, which is what employers and employees want!
If you rent out multiple properties there is a mix of “separate” and “joint” rules. It will be easier to keep separate records for each property, and to combine the totals in order to file a single report. You won’t need to file supporting receipts (though the original MTD plans wanted that) but you will be required (as now) to keep all your supporting receipts so that HMRC can see them if requested.
In the case of a jointly held property, each owner has a separate obligation to file their own figures – their share of each total.
In the case of an unincorporated business, operating as a partnership, a nominated partner is required to submit a full set of totals for all five returns over a year. The nominated partner is required to notify each partner at the year end, of each partners’ totals, and has an option (but not a requirement) to do that for each quarterly report.
There will be an overlap between Self Assessment and Making Tax Digital:
- 2016/17 Self Assessment Return – due 31 Jan 2018
- 2017/18 Self Assessment Return – due 31 Jan 2019
- Apr, May, Jun 2018 MTD report – due 31 Jul 2018
- Jul, Aug, Sep 2018 MTD report – due 31 Oct 2018
- Oct, Nov, Dec 2018 MTD report – due 31 Jan 2019
- Jan, Feb, Mar 2019 MTD report – due 30 Apr 2019
- 2019/19 Self Assessment Return – due 31 Jan 2020
This means that your Apr, May, Jun 2018 MTD report will be due in long before your 2017/18 Self Assessment Return is due. The Apr, May, Jun 2018 figures will also appear in the 2017/18 Self Assessment Return.
We are all going to have to get used to updating our records more frequently, and to submitting returns more frequently. Will this lead to HMRC asking for more frequent tax payments? Quarterly? Currently, they say “no” but who knows how that may change?
Will it lead to more work for you and I? Yes! And what will that mean for fees? Good question.