MAKING TAX DIGITAL – How will it affect your business?

With less than six months to go until the first staging date for implementation, we outline what you need to know about Making Tax Digital (“MTD”) and guide you through what measures to take to prepare for the change.

What’s the reason behind MTD?

The latest figures published by HMRC estimate that the tax gap stands at £33 billion which is 5.7% of tax liabilities. 41% (13.7 billion) of the tax gap is attributed to small businesses.

According to the Office for National Statistics, although 99% of VAT returns are submitted online, only about 13% of those are submitted via software. The other 87% of VAT returns are manually entered into HMRC’s Government Gateway.

HMRC’s ambition is for the UK to become one of the most digitally advanced tax administrations in the world. It is hoped that MTD will help for the following reasons:

  • Digital records should eliminate errors with calculations
  • Help is built-in to the software products
  • Information is sent directly to HMRC from the digital records avoiding errors as data is transferred from one system-to-another

What will change under MTD for VAT?

Under the rules, from April 2019 VAT registered businesses with a taxable turnover above the VAT threshold (currently £85,000) will be required to keep digital records and will no longer be able to use the Government Gateway website.

VAT returns will need to be maintained digitally and submitted via MTD complaint software. Hand written records will be a thing of the past for businesses affected by MTD for VAT.

HMRC have created a list of suppliers who provide MTD compliant software, which you can find here:

https://www.gov.uk/government/collections/commercial-software-developers

Overseas businesses that have UK taxable turnover above the UK VAT registration threshold will also be subject to the requirements of MTD for VAT.

Need help with MTD?

Contact one of our partners who would be pleased to meet with you and undertake an MTD compliance review of your business.

https://www.wtca.co.uk/meet-the-team

Self-employed Class 2 National Insurance will not be scrapped

The government has decided not to proceed with plans to abolish Class 2 National Insurance Contributions ( NICs) from April 2019.

Class 2 NICs are currently paid at a rate of £2.95 per week by self-employed individuals with profits of £6,205 or more per year. The government had planned to scrap the Class 2 contribution and had been investigating ways in which self-employed individuals with low profits, could maintain their State Pension entitlement if this inexpensive contribution had been abolished.

In a written statement to MPs, Robert Jenrick, Exchequer Secretary to the Treasury, stated that:

“This change was originally intended to simplify the tax system for the self-employed. We delayed the implementation of this policy in November to consider concerns relating to the impact on self-employed individuals with low profits. We have since engaged with interested parties to explore the issue and further options for addressing any unintended consequences.”

A significant number of self-employed individuals on the lowest profits would have seen the voluntary payment they make to maintain access to the State Pension rise substantially. Having listened to those likely to be affected by this change we have concluded that it would not be right to proceed during this parliament, given the negative impacts it could have on some of the lowest earning in our society.”

Internet link: Parliament written statement