The HMRC is striding towards becoming the most digitally advanced tax administrations in the world through their ambitious programme. Make Tax Digital (MTD) is one of the very first processes to be implemented in the digital overhaul. The MTD programme will ostensibly streamline and make tax time easier and smoother. However, for many people, there are very real concerns around the transition.
This is a big change, especially for those that have previously kept detailed manual records. They will have to evolve and find and new system compliant systems without error. This often comes with increases in cost and a time-consuming and frustrating learning curve.
We thought we would break down what the MTD change actually means, how it will affect property managers and rental owners, and how you can stay compliant easily with property software like Landlord Studio.
VAT-registered businesses with a taxable turnover above the VAT threshold of £85k are now required to use the Making Tax Digital service to keep records digitally and use software to submit their VAT returns for VAT periods that started on or after 1 April 2019.
What this means in practicality is that beginning 1st of April this year VAT registered businesses making over £85k need to be digitising everything – payments, expenses, mileage etc.
For now, then most landlords don’t really have to worry about MTD. However, this will change as the HMRC rolls out this digitisation plan further.
The main effect of MTD will become most apparent when it comes in for income tax. This was originally scheduled for April 2020 but has been delayed until at least 2021. Knowing that it’s coming it doesn’t hurt to start getting ready right away.
There is a bit of a break for those with larger, more complex businesses. A decision has been made by HMRC to delay the enforcement of MTD for some more complex businesses – a six-month deferral to the start date.
Other than that, VAT registered businesses with a turnover below the VAT threshold can continue to maintain their accounting records and file their VAT returns as they do currently, at least until 2020.
It is recommended by the HMRC that people start moving their systems to digital ones now, although it is not yet mandatory for them, in an effort to make the eventual process of tax digitisation more streamlined.
What Do You Need to Do? Where Do You Start?
The very first step you will want to take is registering through your existing Government Gateway account for MTD. If you don’t already have an account you will need to register, which can be done online at https://www.gov.uk/log-in-register-hmrc-online-services
Second, you need to consider if the changes apply to you currently. If you are uncertain, we recommend you consult with a professional.
If MTD does apply to you and you haven’t yet started digitising your documents we again suggest you consult with a professional.
How an organisation approaches the selection of MTD compatible software will depend on their existing level of technology maturity and its business model.
There are some 150 accounting software providers that are currently HMRC approved which can be found here: https://www.tax.service.gov.uk/making-tax-digital-software
Before settling on your final choice, ensure that the software is easy to use as well as priced fairly. Cloud-based applications may be one of the best ways to go as documents can then be accessed from any digital device – this increases functionality and flexibility.
If you wish to use your current software or stick to Excel, this is still perfectly possible. You will need to use a bridging software which will extract your data and enable it to be sent to the HMRC in a compliant fashion.
In the long term though it may be worth considering investing in one of the approved Accounting Software providers and transfer your records, becoming completely digital as it may streamline your time down the line.
Whilst HMRC has introduced a ‘soft landing’ on penalties for the first 12 months, these are only relating to the digital links for transferring of data between software programs or applications.
No surcharge is payable if the VAT liability is paid by the due date, but the current surcharge process will still operate – making it more important than ever to ensure you’ve done your due diligence and you’re MTD ready for your next VAT submission in April.