Making Tax Digital - it's on its way!

Government plans to implement “Making Tax Digital” (MTD) will be brought in for “businesses” (self-employed, landlords and trusts) with effect from 5 April 2018. If the business income is less than the VAT registration threshold (£83,000) but more than £10,000, the effective date is 5 April 2019. MTD will not apply to companies until April 2020.


If you wish, you could be part of the HMRC test of the system, complying one year early. However, as obligations can start as early as 6 April 2018, we think it best to alert you to the introduction of the system and the current thinking on the mechanics of compliance.


  • Businesses must keep digital accounting records (spreadsheets are acceptable) and must submit information to HMRC using software that meshes with the HMRC MTD system. At first, some thought that HMRC would provide free software, but that will not be the case.


  • Affected persons must submit quarterly returns of trading and rental profits to HMRC, providing details of the income and analysing their expenses. It is possible that for MTD you have three types of income-business profits, business rents and personal rents-in which case you will be required to submit a quarterly return for each source.


  • Within 10 months of the end of the fourth quarter (the year-end), a finalised end of year position must be submitted to HMRC.


  • From April 2019, VAT registered businesses will also have to submit their VAT returns through their MTD software.


  • Partnerships and joint property owners must nominate a partner/owner to be responsible for filing the returns which will feed into the individual records.


  • All individuals who must comply with the legislation must have a personal Business Tax Account. If you are a VAT registered sole trader, you will already have a Business Tax Account and can log into it using your existing Government Gateway details. If you are a partner in a VAT registered business, the partnership will have a Government Gateway account but you, as an individual, might not so will need to set one up.


  • Taxpayers may appoint agents to deal with the compliance issues.


  • As you would expect, in time there will be penalties for non-compliance and errors made. 


  • There will certainly be an increase in business costs in respect of time spent on the extra submissions and, probably, the software required.


  • Your tax liability will be driven by the MTD entries.


To end up with the right tax liability, you will need to make the returns and ensure that the correct claim is made in respect of, for example, expenditure on machinery, improvements to buildings, pension contributions etc. We think this will mean Spencer Fellows being involved in the filing of some or all of the returns, in particular the fifth one which will become the equivalent of your tax return.


We shall be considering various software packages and helping clients to migrate their records to them if necessary.


To minimise exposure to penalties, it is sensible to have a review of the data before it is submitted. Online bookkeeping systems make it easy for accountants to view client data files in real-time and assist with any necessary adjustments. This should provide benefit at the year-end in that, if reviewed during the year, the final return should not include too many adjustments. The obvious downside is that this increases quarterly costs.


Although the earliest commencement date is 6 April 2018, there is not a great deal of time to prepare and we will keep you posted on developments as they unfold. If you wish to discuss this please do not hesitate to call us on 01245 266831.


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MTD takes effect for all VAT returns beginning on or after 1 April 2019. This means all VAT returns must be filed electronically using compliant software and not just by entering figures through the HMRC portal as might currently be the case.

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