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What Accountants need to know about HMRC's Making Tax Digital for business (MTDfb)

At the end of January, HMRC published its response to last year's consultation on the upcoming Making Tax Digital initiative.

For the tax-man, it's an inevitable and welcome transition to a paperless future that's expected to put almost £1 billion into the Exchequer by 2021.

For SMEs, it's a fundamental change to the way they pay their taxes. And that means it's a shift in the industry that you can't afford to ignore.

To help you get a head-start on the proposed revisions and upcoming legislation, we've broken down the government's latest report into a few key points – what businesses will need to do, and what you'll need to do to help them.


When's it all happening?

The government is currently planning to start a year-long trial of the Making Tax Digital (MTD) programme in April 2017.

Beyond that, the new online system will become mandatory for different businesses in yearly stages. In particular, a business will have to start using the service from:

  • April 2018 if it has profits chargeable to Income Tax and it pays Class 4 National Insurance contributions
  • April 2019 if it's registered for and pays VAT
  • April 2020 if it pays Corporation Tax.

As it stands, that's the plan.

But the government also said it was considering a situation where more of the smallest businesses wouldn't be compelled to use the new service, as well as the possibility of pushing back the mandatory start date by a year for a certain range of small businesses.


What does this mean for my clients?

In short, it might mean they'll be seeing a lot more of you. The proposed changes will require affected businesses to:

  • use software or apps to keep track of their tax affairs. HMRC has recently adapted their proposal to include spreadsheets – such as Microsoft Excel – but have said that businesses "might need to combine the spreadsheets with some other software to clean the data".
  • keep HMRC updated with their tax data on a quarterly basis using digital tools – as opposed to the current all-at-once annual tax return
  • finalise their end-of-year position, again using software or apps. They'll have up to 10 months after their fourth and final quarterly update to set their taxable profits in stone for that year.

Of course, it's not all extra burdens and regulations for your clients. The recent proposals included positives for businesses too – and understanding them now could help you to extinguish their concerns when the time comes to help them make the switch.

Businesses about to start using the Making Tax Digital service can expect to have:

  • free software made available for those with relatively straightforward tax affairs
  • no requirement to make and store invoices or receipts digitally
  • a more clear view of their tax situation throughout the year, with fewer avoidable errors and without any end-of-year surprises
  • more free time for high-value tasks, with less time spent on gathering and entering data
  • more money in the bank – after an average one-off transitional cost of £280, businesses using the service are expected to see savings from 2021 onwards.


What will this mean for accountants?

HMRC predicts that the upcoming changes will affect almost 5 million companies and self-employed people.

That means the majority of your current clients – and any prospective ones – will be looking for an accountant who can help them make big changes to the way they pay their taxes.

And with a requirement for some businesses to get on board with this new system in less than a year, you need to start getting ready to guide them now.

To find out more about cloud-based accounting software, or to see exactly how we can help you help your clients, get in touch today to book a free consultation with one of our experts.