Unincorporated businesses, including landlords, were expected to be the first to see significant changes in the recording and submission of business transactions but the government has announced a delay to the implementation of the new rules.
The new timetable is being introduced following concerns raised by the Treasury Select Committee, businesses and professional bodies about the implementation of the new rules and to hopefully ensure a smooth transition to a digital tax system.
The government has confirmed that under the new timetable:
- Businesses will not now be mandated to use the Making Tax Digital for Business system until April 2019 and then only to meet their VAT obligations. This will apply to businesses who have a turnover above the VAT threshold.
- These businesses will be able to provide quarterly updates for other taxes too, but there will be no mandatory requirement to do so. Similarly, businesses that are not VAT registered and those below the VAT threshold who have voluntary registered for VAT can opt to use the system.
- The government will not widen the scope of Making Tax Digital for Business beyond VAT before the system has been shown to work well, and not before April 2020 at the earliest. This will ensure that there is time to test the system fully and for digital record keeping to become more widespread.
VAT Quarterly Returns
The government has stated – ‘as VAT already requires quarterly returns, no businesses will need to provide information to HMRC more regularly during this initial phase than they do now’. What this statement does not highlight is the fact that currently many businesses do not submit VAT returns direct from software but use spreadsheets. HMRC has previously stated that spreadsheets will need to meet all the necessary requirements of MTDfB (ie not just keep a record of each transaction but also provide quarterly summary information).
The government has stated:
‘HMRC will start to pilot Making Tax Digital for VAT by the end of this year, starting with small-scale, private testing, followed by a wider, live pilot starting in Spring 2018. This will allow for well over a year of testing before any businesses are mandated to use the system.’
Introduction of Cash Basis for Landlords
Alongside the changes being brought in by Making Tax Digital, there are also proposed amendments to the way that unincorporated property businesses account for their property income. These proposals will make cash basis accounting the default option for smaller unincorporated property businesses unless they elect to use the accruals basis.
The cash basis means the business accounts for income and expenses when the income is received and expenses are paid. The accruals basis means accounting for income over the period to which it relates and accounting for expenses in the period in which the liability is incurred.
These changes were in the original Finance Bill published before the General Election and will be republished in a Finance Bill to be issued this autumn. These changes will start for income and expenditure transactions from 6 April 2017 although a decision as to whether to use the new cash basis or maintain the existing accruals basis does not have to be made until the 2017/18 tax return is submitted.
Further Points
Other parts of the MTD project will continue. In particular the objective of bringing together each individual taxpayer’s information in one online place – a Personal Tax Account – will continue to be progressed. For example, banks and building societies will, from April 2018, be required to report information to HMRC earlier and more frequently, than currently. This information will then feed into the Personal Tax Accounts and will be used by HMRC to estimate tax liabilities.
We will be keeping all businesses updated about Making Tax Digital and as of September we will be inviting those first affected into our office to discuss the changes and how they can prepare their business.
For further information or advice on Making Tax Digital, contact lee.manning@raffingers.co.uk.