HMRC has published its response to the MTD consultations and gives us an update on the current position as to how MTD will be implemented next year.

So what do you need to know?

  • The way you report to HMRC will change from April 18
  • You will need to give HMRC info quarterly with a 5th report due at the year end
  • You can still use spreadsheets as long as they meet the requirements of MTD ( this is likely to mean linking it with software somehow)
  • The requirement to keep digital records does not mean that you will have to produce and store your invoices and receipts digitally
  • Free software will be available to businesses with the most straight forward affairs (no info yet about what this will look like)
  • Cash accounting rules can be used for businesses with a turnover up to £150,000.
  • Businesses eligible for 3 line accounts on their tax return will only have to give the same info quarterly (income, expenses, profit)
  • No penalties for the first 12 months for getting it wrong!

So for a small sole trader business, from April 18 you will have to do the following returns:

  1. First report from April – June 18 due in June/July 18
  2. Second report from July – Sept 18 due in Sept/Oct 18
  3. Third report from Oct – Dec 18 due in Dec 18/Jan 19
  4. Fourth report from Jan – March 19 due in March/April 19
  5. Fifth and final report for the year, confirming annual figures due Jan 20
    AND:
  6. Normal tax return for 17/18 due 31 Jan 19

HMRC has been lobbied to change the level at which business need to comply with MTD (currently sales of £10,000 for small businesses and landlords) but they have not announced any changes yet.  Instead it is “considering if further” along with the start date for the smallest of businesses!!

 

It is also playing down the costs of MTD to the small business.  Its own assessment is a one off transitional cost of around £280 – much lower than the figure estimated by everyone else of around £1250.  (I know which figure I believe!)

 

So What Should I do Now?

 

With the new financial year starting in April – now is the ideal time to think about your bookkeeping systems and how you are going to need to change them for MTD.  MTD is a year off, but with the first return due just 3 months into the year, that’s not long to get your head around a new system.

 

It is likely that any new free software offered will be similar to the current HMRC online tax return filing system (eg can’t be accessed by your accountant), so if you are going to need/want your accountant’s help with MTD, then you will probably need to look at commercial online software.

 

New programmes will undoubtedly become available during the year as we learn more about MTD, but for those who leave their accounts til the year end and then spend a day frantically getting a spreadsheet up to date, or organising receipts, you are going to have to change your ways.

 

Online bookkeeping systems do save you time and hassle, as well as giving you real time information about your business, and are well worth the £20-£30 a month cost.  My advice would be to look at these for your business from April this year so you are all ready to go when MTD goes live.

 

For more information please contact Rosie Forsyth