New tax obligations for the self-employed, landlords and partnership
Over the next few tax years, MTD will be introduced for all businesses and landlords, including companies and partnerships. The main changes are:
- Paper records will no longer be sufficient: it will become mandatory for almost all businesses to use software or a spreadsheet to keep accounting records to meet tax law requirements.
- Quarterly reporting: updates will have to be made to HMRC each quarter directly from accounting software, within one month of the end of each quarter.
Initially, HMRC were pushing for MTD to be implemented for unincorporated businesses from April 2018. However, following a statement from the Paymaster General, Mel Stride, on 13 July 2017, this has been deferred until April 2019, but only for VAT registered business and only for VAT. It is to be rolled out for other taxes from April 2020 at the earliest.
There are different requirements for different types of businesses. Those who are partnerships, self-employed, trusts, landlords and companies are all affected.
What do I need to do?
Any action required will depend on the size and structure of your partnership or business and how you currently keep your records. Crowe UK can support you through these changes and provide the ongoing services that you need. However, the changes are so fundamental that it will be necessary to review your current record keeping systems and to agree the services required.
Closer to your start date, you will need to consider:
- your start date
- whether an exemption is applicable
- your business records, including available software. If you currently maintain some records on paper or a spreadsheet, your processes will need to change
- the quarterly reporting requirements, including deadlines
- our services and how they will need to change.
When does it start?
Your MTD start date depends on the size and structure of the partnership and your accounting year end. We can discuss your specific start date with you, but in general, for partnerships, MTD will become mandatory as follows:
- From 6 April 2019 for VAT registered partnerships with gross income over the VAT threshold but below £10 million. You will need to keep digital records for VAT purposes only. The VAT threshold is currently £85,000 per year.
- All businesses with a turnover in excess of the VAT threshold will report under MTD for income tax and national insurance from at least 6 April 2020, regardless of whether you are VAT registered.
- For those below the £85,000 threshold, you can voluntarily report under MTD from 6 April 2020.
What else do I need to know?
- The information submitted must be made using accounting software.
- MTD is anticipated to replace the usual self-assessment partnership tax return.
- Partners will remain responsible for reporting their own allocation of partnership profit and to pay their tax. However, it is anticipated that there will be an option for the annual finalisation return to allocate taxable profits between partners and to feed into the partners own tax affairs at HMRC. We can discuss these deadlines and reporting obligations with you.
When does it start?
Your MTD start date depends on the size and structure of your business and your accounting year end. We can discuss your specific start date with you, in general, income tax for self-employed, partners, trusts and landlords who all complete self-assessment tax returns will become mandatory:
- From 6 April 2019 for VAT registered businesses and landlords with gross income over the VAT threshold for VAT purposes only. The VAT threshold is currently £85,000 per year.
- From at least April 2020, businesses with a turnover in excess of the VAT threshold, regardless of whether they are VAT registered, will need to report under MTD for all taxes.
- For those below this threshold from 6 April 2020, you will be able to voluntarily report under MTD.
MTD will be mandatory for corporation tax reporting from at least 1 April 2020
Who is exempt?
- Small businesses and landlords with gross income of less than the VAT threshold.
- Those who are not able to engage digitally for religious reasons or due to a factor such as age, disability or location (e.g. no availability of broadband).
How will quarterly reporting work?
From your start date, details of your income and expenditure will need to be reported to HMRC within a month of the end of each quarter. The submission of the information must be made using accounting software (or a spreadsheet if you are self-employed, partners, trusts and landlords who all complete self-assessment tax returns). After the fourth quarter is submitted, an annual finalisation return will need to be submitted, typically within 10 months of the final quarter. This is anticipated to replace the usual self-assessment partnership tax return and may replace the annual self-assessment tax return if you are self-employed, partners, trusts and landlords who all complete self-assessment tax returns.
Is this a good thing?
We believe these changes are a positive step forward towards a digital and more efficient tax system.
Closer to real time reporting may help business owners to better understand changes to their business as they occur, rather than when annual accounts are prepared, which may be several months later.
It will also assist in budgeting for tax liabilities as the year progresses.
However, it is acknowledged by the profession that the change will cost businesses. Estimates vary widely. For example, Tax Research UK have suggested the cost to be approximately £308 per taxpayer although the Federation of Small Businesses believe the cost could be £2,770 per taxpayer.
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