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Making tax digital to start in April 2018
Legislation to introduce Making Tax Digital (MTD) will be included in the Finance Bill 2017 and despite many objections that it was too soon, it is intended the new system of quarterly reporting will commence as follows for the self-employed and property landlords:
- April 2018 – if you have profits chargeable to income tax and pay Class 4 National Insurance and your turnover is above the VAT threshold (currently £83,000).
- April 2019 – if your turnover is below the VAT threshold.
- April 2020 – if you pay Corporation Tax.
Businesses, self-employed and private individuals with turnover below £10,000 will be exempt from the digital requirements.
Persons in employment who have a secondary income of more than £10,000 through self-employment or property will be required to use the digital service.
There were 1,200 responses to the consultation documents issued in summer 2016 and a number of changes have been made to the original proposals.
Much of the detail will be introduced by secondary legislation and there will be further consultation on a number of measures but the key proposals are:
- Businesses will be allowed to use spreadsheets to keep their accounting records.
- Businesses eligible for three line accounts will be able to submit a quarterly update with only three lines of data (income, expenses and profit).
- Free software will be available to businesses with more straightforward affairs.
- Businesses will not have to make and store invoices and receipts digitally.
- There will be no late filing penalties in the first year of the new system.
The deadline for finalising taxable profit for a period will be the earlier of:
- 10 months after the last day of the period of account, or
- 31 January following the year of assessment in which the profits for that period of account are chargeable.
Businesses and property landlords with a turnover up to £150,000 will be able to prepare accounts on a cash basis.
These changes will have a significant impact on how you keep your business accounts and communicate with HMRC.