Most of us are aware that pulling information together for year end accounts and tax returns can be a laborious task, however this process may soon have to be carried out on a more frequent basis with the impending changes as to how and when businesses and individuals will submit their financial information to HMRC.
Making Tax Digital (MTD) is an HMRC initiative that is due to be phased in from April 2018. Essentially, all small and medium-sized businesses and individuals that are required to submit Self Assessment Tax Returns with income over £10,000 per annum will be required to submit details of their income and expenditure to HMRC on a quarterly basis in a prescribed digital format.
By 2020, most businesses and individuals will be using this new system.
At Clarand Accountants, we believe that MTD is a huge step forward in the long term. Most of Western Europe and the US submit quarterly returns to their tax authorities and the IRS already. For the UK, quarterly payments of tax – envisaged to be introduced in the not-too-distant future – should help with planning and ease cashflow, rather than paying a large of sum of tax nine or ten months after the accounting year end.
Unsteady cashflow and customers paying late are often a headache for most business owners. Of course, the real pinch point will be the transitional year from paying tax on an arrears basis, to paying in real time. You’ll effectively be paying two years’ taxes in one year.
It may be that it’s the buy-to-let landlords whose cashflow will suffer the most. Recent changes in legislation have meant the gradual loss of interest relief for higher rate earners, and the loss of ‘Wear and Tear allowance’ for all. There is now the additional three per cent stamp duty land tax to be paid on purchase of any additional residential property, other than that of the main residence. When a landlord comes to sell the property, capital gains tax needs to be paid at a rate ten per cent higher than on other gains, and from April 2019 the tax due needs to be paid within 30 days of completion. All of this may have dire cashflow implications.
With the ongoing Brexit negotiations, maybe postponing MTD at least a year may wouldn’t be a bad move? For buy-to-let owners, any postponement will potentially give some breathing space while landlords adjust to the many changes which have already been imposed on them recently. Certainly, for smaller businesses and individuals getting into the habit of collating information on a regular basis will help to avoid any penalties for late filing once MTD kicks in.
There are many changes ahead for all businesses. Brexit will alter how we trade with Europe and there are many global opportunities waiting to be taken. The
weaker pound, in particular against the dollar, provides great opportunities for export. At Clarand Accountants, we’ve have already seen our own clients’ overseas trade as a great area of business growth and as we continue to see their thirst for growth, many will still keep pushing ahead as planned – does MTD need a place right at this moment?