Making Tax Digital for Solicitors
Partnerships, LLPs and sole practitioners will be among the first to join HMRC’s brave new digital world in 2018. This will revolutionise the way many keep their books and accounts. It is HMRC’s hope that by 2020 limited companies will also join, and the tax return as we know it will have been entirely abolished.
It is proposed that from April 2018, all but the very smallest of unincorporated firms (turnover less than £10,000) will be required by law to keep their records on accounts software. Most firms already do this – but there will be an additional requirement in that, the software must be capable of sending information to HMRC every three months. At present, there is no software on the market capable of doing this. Over the coming months we will be talking to the major legal software developers to find out what they doing about it.
HMRC call this project “Making Tax Digital” (MTD). The idea is that everyone will use MTD-compatible software, to record all their business transactions. Every three months, the software will (“at the push of a button”) send the data to HMRC. These three monthly uploads will not be accounts as such, and will not include items such as work in progress valuations or tax adjustments, but for firms with fee income in excess of £166k, they will need to include adjustments for depreciation, accruals and prepayments. HMRC are then proposing that firms will have a further nine months after their last quarter end to submit any final tax and accounting adjustments required to calculate their year end tax liabilities.
While information will be submitted quarterly to HMRC, they have confirmed that there is no intention at present to make the payment of tax quarterly. The payment dates of 31 January, and 31 July (if payments on account are required) will remain. Taxpayers can, however, make more frequent payments if they choose to on a voluntary pay-as-you-go basis. HMRC are currently looking at various incentives to encourage PAYG payments of tax.
VAT returns are of course already submitted quarterly, and HMRC is looking at whether the VAT return will be combined with the quarterly MTD submission.
MTD will be a massive change for all businesses, but particularly so for those who have always kept their records manually, and give these records to their accountant once a year. Once introduced, everyone will be required to use software of some sort, and keep records in real time.
MTD is also a huge project for HMRC. They have published six separate consultation papers, and will be drafting new legislation to put it into effect. There are lots of questions to be answered and details to be ironed out. It is likely that we will see the April 2018 start date pushed back. But MTD is coming, so watch this space for further information and feel free to speak to us about the accounting implications.