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The current personal tax system was introduced for the 1996/97 tax year, so we have had nearly 25 years to become familiar with it. Overall, the system works well. Those that remember (not me!) will probably agree that Self-Assessment is superior to what came before. But it is time to start saying goodbye to the Self-Assessment system as we know it.
Making Tax Digital (MTD) is on the horizon. For some time now April 2021 has been the date which we expect it to be introduced for landlords and the self-employed, and it looks like this is on track to happen. If anything, the COVID-19 situation will mean the MTD project stays on track because, ultimately, MTD is a tax gathering exercise.
While we expect that all landlords and those that are self-employed will be expected to make MTD filings, there may be limits to this. Will those with, say, £10,000 of income or less be exempt? We simply do not know.
What does MTD mean for you?
While details are sketchy, we think that we have an idea of how MTD will progress over the coming years.
If you are caught by the MTD criteria you will be required to submit quarterly Tax Returns to HMRC summarising your income and expenditure in the period. This will need to be submitted electronically using software approved by HMRC.
At first it is likely that penalties will be waived for late submission of these quarterly forms, but after the first year it is expected that severe penalties will be imposed for non-compliance.
In time more information will be required to be submitted electronically, such as receipts and possibly business bank statements.
Ultimately, it is expected that MTD will accelerate your tax payments.
What do you need to do?
If you are a landlord or self-employed you should ensure that you are keeping your records on software that is planning to be approved for MTD submissions to HMRC.
We are supporting Xero. We have been using this software for many years so know it very well. Xero costs from £5 per month for non-VAT registered businesses/landlords, or £9 per month for VAT registered businesses.
It is suggested that you start keeping digital records as soon as possible so that when your first MTD Return is due for the period April to June 2021 you are well versed. We can help you with this, so that when you are required to submit quarterly Returns this can be done with the minimum of fuss.
You will also need to think carefully about what you submit to HMRC. MTD is likely to spell the end of after-the-event tax planning. All income and expenditure will need to be reported accurately or it will not match your usual Self-Assessment Tax Return when this is submitted, and this could lead to a tax enquiry.
What can we do to help you?
We can, as you might imagine, do everything. We can set you up with a Xero subscription, we can train you to use Xero, we can maintain your records each quarter, submit MTD Returns to HMRC, and answer your questions on reporting if you are submitting your own Returns.
Contact your usual manager or partner at Wilson Wright for further information.
