The latest elections have produced some very interesting results that have reshaped the political landscape in the UK.

The recent Queen’s speech was stripped back to basics compared with the Conservative party manifesto, as the government is without a strong majority to pass more controversial amendments. However, Making Tax Digital (MTD) is still part of government plans, which reflects how important the current government believes it to be. More detail is expected in a summer Finance Bill due later this month.

As part of MTD, sole traders and eventual companies will have to submit quarterly accounts via commercial software to HMRC within 30 days of a quarter end date. Sole traders with a turnover greater than £85,000 will have to start MTD in April 2018, while those with less than £85,000 will start in April 2019.

Accountants will be able to access their clients’ tax information and accounts held by HMRC. They will also be able to adjust the information for the accounts and enter personal tax data (dividends, investments etc) and submit a final declaration. This is the new name to replace the tax return. At present, accountants must enter the personal information on to a return and submit the information to HMRC. The new system will have most of the personal information online, that the accountant must simply review.

HMRC will require stockbrokers, employers and letting agencies, etc, to complete returns detailing all the clients/employees they have and the income they earned. This will be entered automatically on to the self-employed person’s personal tax account held by HMRC with the national insurance number being used as a reference.

This new system will reduce the level of fraud and errors, but it is anticipated there will be issues during the first year of MTD. HMRC has stated that it is working on a new system of penalties but it will not charge penalties in the first year of MTD to allow for the increased errors in the rollout of the new system. There are also reports that HMRC will force clients to pay their tax bills four times a year as opposed to the twice a year at present.

Sweden example

I was recently speaking to colleagues in Sweden where the new system was introduced a few years ago. There were difficulties in introducing the new system which have since been ironed out, but some major advantages which in the long term have benefited their clients.

Many sole traders who are not computer-literate will have to get their accountants to enter the information on a quarterly basis. Clients will be forced to get their books in early – 30 days after a quarter end. It will force many businesses to computerise their accounts and this will allow businesses to manage their finance easier and highlight any financial difficulties quickly. It will allow for easier cash flow if payments are quarterly, as many clients submit their accounts six to nine months after the year-end, and are then hit with a large tax bill they may not have expected in January.

Advice

This is a major change to the taxation system in the UK, perhaps the biggest ever change. Many of my colleagues in the accounting profession are trying to prepare for MTD. It is important to contact your local accountants and seek their advice. Every business is different and your local accountant will help your business prepare for these changes.

Please note the advice given above is very general and cannot not be relied upon as each individual business case would need to be assessed. MCA Chartered Accountants cannot accept responsibility for decisions based upon this article.