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News added on 09.11.2017

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Making tax digital

MTD will impose tighter control on record keeping

HMRC’s Talking Points session for Making Tax Digital for Business (MTDfB) considered several key questions previously raised. It also flagged worrying signs over the level of control HMRC will impose on your day-to-day bookkeeping. What’s the full story?

Error checks. HMRC wants your bookkeeping and accounting software to provide nudges and prompts to “eliminate common errors” before you submit your figures to it. This will require significant co-operation from software developers, and so you can expect major changes to your bookkeeping apps. This will involve radical changes to the current role, method and consequences of your bookkeeping processes. It raises important questions such as, how corrections can be made, whether the software’s error warnings can be overridden and if so, how will HMRC react.

Evidence of transactions. To reduce errors HMRC thinks there should be closer ties between transactions and how they are recorded. This, for example, will mean using “any Internet-enabled device”, e.g smartphone, tablet, desktop, PC, to record a transaction, e.g. an employee scanning a receipt for a travel expense, which then gets recorded in your accounting records with as little further invention as possible.

Real-time categorisation of transactions will then be applied for income tax and VAT purposes. The categories will match the headings on the current self-employment pages of a self-assessment tax return and, for landlords, those shown on the land and property pages, but without the need to analyse expenditure between separate properties.

Free software: fact or fiction? HMRC still anticipates that free MTDfB compatible software will be available for income tax for “businesses with the most straightforward affairs.” The trouble is that major software houses like Xero are saying that it isn’t “commercially viable to build a sophisticated web service for free”.

Spreadsheets. There’s been a lot of talk about whether businesses who use spreadsheets for their record keeping will be able to use them for MTDfB. HMRC says yes, but they must meet all MTD requirements. This means there must be a facility to extract data from your spreadsheet and send the data digitally to HMRC. In essence, a separate piece of software will be needed to translate your spreadsheets into an MTD compatible report.

Digital reporting deadlines. Quarterly reporting will be required within 30 days of the period end, i.e all transactions for the quarter must have been captured by then. Following receipt of a quarterly report, HMRC will “reflect back the emerging tax liability” to you via your MTDfB software. In practice this might not be especially helpful for individuals because your tax liability is affected by how much other income you have as well as tax reliefs etc. you’re entitled to.

What next? If you already use bookkeeping software you just need to keep a close eye on updates from the provider. If you don’t use software, it’s probably the right time to start looking for an app that suits you and your business, as trying to cope with MTDfB without one could be more trouble than it’s worth.

HMRC is working with accounting software providers to include features such as real-time error correction. This will produce warnings if your bookkeeping doesn’t match what HMRC would expect, even before you submit the figures. MTD reporting will be required within 30 days after the end of each quarter.

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