Your questions, answered.

What is Making Tax Digital?

Making Tax Digital (MTD) is a government (HMRC) objective to transform the tax system and end the tax return.

The aim of the initiative is to make tax administration more effective, more efficient and easier for taxpayers, through the implementation of a fully digital tax system.

The initial aim was that by 2020, most businesses, including companies, partnerships and individual taxpayers who are self-employed and those letting out property, will be required to keep track of their tax affairs digitally and update HMRC every quarter. The dates for implementation have been pushed back, but the objective still remains the same.

How will an individual’s quarterly submission work for clients running their own companies and getting a salary and/or dividend calculated at the company year-end?

The process for companies has not yet been decided. HMRC will carry out a consultation process for companies, the same as they have done for other trades and this will determine how these situations will be handled.

From the individual’s perspective, it is only their trade and land & property income that needs to be filed quarterly, all other income can be submitted after the end of the tax year.

Will agents have to be approved for MTD and what is the subscription process?

The MTD process for agents is still being refined by HMRC. What we know at the moment is that agents will be required to register for Agents Services to allow them to act on behalf of their clients under MTD. To register for this they will need to request a new “clean” set of user credentials from the government gateway and carry out a mapping process in order for any existing 64-8 relationships to be carried over to these new set of credentials.

We will be making guidance available as soon as we have the full end to end process from HMRC.

Will completion of a Self-Assessment Tax Return continue for clients not covered by MTD quarterly filing , for example, for high wealth individuals with investment income and capital gains ?

Yes, that is correct, self-assessment returns will continue for those that MTD does not apply to. MTD quarterly submissions only apply to trading and Land & Property income. HMRC’s plans show that this will be expanded to cover VAT reporting and Corporations, but they are yet to consult on MTD for individuals.

What are the timescales for introducing MTD?

April 2017 – public beta opens for individuals involved in a single trade and individuals with land and property income

April 2019 – VAT Reporting will continue as it currently is with quarterly submissions, but the submission process will go via the new MTD API route rather than a Return form

April 2020 and beyond – Individuals with trading income, individuals with land and property income, partnerships and corporations will all join the journey from April 2020 onwards

How do HMRC plan to help new businesses understand the requirements of the new regime?

They have not as yet shared their plans with us.

Will agents have to be approved for MTD?

Yes, there will be a subscription process.

Will agents be able to access client accounts through HMRC?

HMRC’s intention has always been that they would not be opening up access to the digital tax accounts for agents, instead they intend to make the same information available via APIs for it to be made accessible via software.

How will capital allowances be handled under MTD?

Currently the data made available from HMRC shows that adjustments, including capital allowances should be submitted to HMRC as part of the end of period finalisation submission and not within each of the quarterly submissions.

When will HMRC be publishing a list of appropriate bookkeeping software? Will HMRC be certifying each product?

This is still being worked out between HMRC and software providers, but HMRC have stated that there will be a recognition process that all software vendors providing an MTD solution will have to go through.

What impact will Brexit have on MTD?

There is no indication that MTD will be impacted by Brexit.

For small businesses that have to file a CT return, will they have to file an annual return as well as the quarterly returns after the YE accounts have been done?

HMRC’s intention is that quarterly filing (plus the end of year activity) will replace the submission of a CT600, but companies are a long way off in HMRC’s plans so this is subject to change.

When HMRC say ‘quarterly reporting’, will it be the same quarters for everyone? Or staggered, as with VAT Returns, to take some of the burden off accountants?

The quarterly periods will be based upon the accounting period of the individual, so they will differ depending on the accounting period.

Are there penalties if a sole trader doesn’t file quarterly information or is late sending it in?

HMRC has indicated there will be a ‘soft-landing’ for a short period but the details are yet to be published.

Do all clients really have to start keeping digital records? Or is it a case of accountants sharpening their own systems so they can comply with MTD for clients?

HMRC requires digital records to be kept, although this does not mean digital copies of invoices or receipts. It is up to the individual whether they do this themselves, employ a bookkeeper or ask their agent to take care of this for them.

How will HMRC’s website cope with the volume of quarterly reporting when it has been known to crash on Jan 31st?

HMRC will ensure they have sufficient capacity to cover the likely submission volumes.

What is HMRC doing to get MTD details to the self employed or small businesses that don’t use agents?

HMRC plan to start advertising the changes to the taxpayer directly much closer to the launch of the mandate.

Will the quarterly returns replace the annual self-assessment return?

Yes, for some they will replace the annual self-assessment return. Trading and L&P income will need to be reported quarterly and there will still be an end of year activity in which all other income is supplied/confirmed. The means of submission to HMRC is what is changing.

What will happen to my clients who are baby boomers and have never used the internet/a computer and don’t intend to do so once MTD is compulsory?

HMRC have stated that there will be exemption for those that are “digitally excluded” which is based on the current exemption from online filing for VAT, which refers to “persons for whom online filing is not reasonably practicable for reasons of disability, age, remoteness of location or any other reason”, and HMRC will provide non-digital alternative channels to them. However, it is unlikely that this exemption will be granted to anyone just because they have never used the internet or a computer, HMRC’s expectation is that these individuals will need to look for assistance either from friends and family, an agent or bookkeeper or HMRC themselves.

Will I be able to submit quarterly data to HMRC and calculate quarterly tax liabilities through IRIS Personal Tax?

Yes, IRIS Personal Tax will include the facility to submit quarterly data and the option to retrieve that tax calculation at that stage from HMRC.

Should agents be worried about being undermined?

No, this is an opportunity to streamline processes and free up agent time for higher fee advisory services.