Mtd

In the office, we make a joke that Making Tax Digital (MTD) will be like GDPR all over again, with people scrabbling about last minute to become compliant, not quite sure if they’re doing it right. Luckily, as Chartered Accountants, we’re much more confident that this won’t be a problem for us (or for our clients).

In fairness to HMRC, there has been a lot of information on MTD from the very beginning with timely updates on any amendments to their plans. Accountancy practices across the country are certainly doing what they can to keep their clients informed on the matter. However, with all the talk on MTD it understandably becomes information overload – which soon translates to white noise. Just as with GDPR, people tend to stop listening; and companies who were desperate to communicate everything that was going on, instead stuck to the key bullet points for easy information digestion.

The key bullet point for MTD is that VAT registered businesses will be required to use digital software (specifically known as cloud accounting software) in order to maintain their VAT records. Paper records will no longer be accepted.

Information other than the key bullet point then gets lost and quickly turns into inaccurate myths. So, let’s turn down the noise and just get to the facts:

1.      With Brexit to focus on, HMRC keep delaying MTD so will just scrap it instead.

The truth: Brexit has affected the launching of MTD; however, the project in its entirety consists of many parts including personal income tax, VAT, and corporation tax (as well as scope for more). Originally HMRC had ambitious targets of achieving an implementation of all three taxes by 2020. Whilst it’s true that there are some delays to personal income tax and corporation tax, MTD for VAT will be going ahead, coming into force 1 April 2019.

MTD will essentially allow HMRC to collect tax payments more frequently, thereby closing the tax gap. In addition, they have already heavily invested in putting systems in place and beta testing. From an accounting industry viewpoint, we do not foresee any likelihood that the MTD scheme will be scrapped.

2.      MTD will have to be delayed further because people have not been given enough time.

The truth: This is probably how a lot of people felt when GDPR came in, however the reality is that it was first announced in 2016 and the UK (amongst other EU Member States) was given two years to implement, the deadline being May 2018. Arguably that was ample time.

The same can be said with MTD. It was first announced in 2015, giving us four years to prepare. Cloud accounting software has long since been available for adoption. Whilst the first phases of MTD only affect VAT registered companies, businesses who are not yet at the vat threshold (£85,000) are still welcome to voluntarily opt into the MTD scheme early, thereby allowing them even more time to prepare and so future proof their business.

Whilst big corporations such as the BBC have called for MTD to be delayed until at least the 2020/2021 financial year, we see that as being highly unlikely.

3.      MTD only affects VAT registered businesses and will not affect sole traders.

The truth: As already mentioned above, MTD is made up of many parts, with personal income tax being only one. The personal income tax section has been delayed until further notice; however, it is important to remember that HMRC has already put beta testing in place, with people currently trialling the system. It is simply a matter of rolling out MTD for VAT returns, allowing people time to adjust and become familiar, before they release personal income tax. So, will it affect sole traders? Absolutely – it’s only a matter of time. Not only sole traders but anyone who needs to complete self-assessment to declare personal income.

4.      I can just opt-out of MTD.

The truth: HMRC have given serious consideration to those who will be unable to participate in MTD and have outlined an exemption policy for the “digitally excluded”. This includes those who cannot engage with accounting software on grounds of religion, disability, age or remoteness of location (lack of internet availability).

Note that this does not translate into an opt-out option for those who simply do not wish to participate with MTD. Those who believe they have an alternative justification for being unable to engage with digital software will be considered on a case-by-case basis.

5.      Cloud accounting for MTD will be able to calculate everything for me so I won’t need to hire an accountant.

The truth: If this is one of your first thoughts, then we would take a guess that you probably didn’t need an accountant in the first place. Indeed, many people complete their tax returns without the help from a professional, especially if their tax matters are straight-forward and simple.

However, engaging with a professional brings their wealth of experience, their expert knowledge and their valuable advice. For help in learning how to use cloud accounting software, ensuring every deductible has been claimed for, strategic recommendations to improve business, margins or tax planning, then it will be an accountant and not software that will help. MTD will likely change, adapt and progress. As chartered accountants, we’ll be at the forefront of all new developments and can keep you informed.

Have you heard about any other myths? Not sure on what you actually need to do for MTD? Find out what you need to know on our Making Tax Digital page.

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