All you need to know about Making Tax Digital

If you’re a regular to the Intouch blog, you might have read our recent article on what the Budget means for contractors. One topic we didn’t tackle in depth was the introduction of the government’s Making Tax Digital (MTD) programme from April 2019, which is going to affect VAT registered contractors with a taxable turnover above the threshold.

 

As the government websites states, the MTD initiative forms a key part of its plans to ‘make it easier for individuals and businesses to get their tax right and keep on top of their affairs.’ Think you’ll be affected by the change? If so, here’s some information you might find useful:

 

Why the change?

Along with simplifying processes for individuals and businesses, the government wants HMRC to be one of the world’s most advanced tax administrations. MTD will lead to fundamental changes in our tax system, with the aim of reducing errors and making it more effective and efficient.

 

Who does it apply to?

The MTD scheme will apply to companies, LLPs, unincorporated businesses and charities that are VAT registered and have a taxable turnover above the VAT registration threshold, which currently stands at £85,000 per annum. If that’s you, you’ll have to store your tax records digitally (for VAT purposes only) and send HMRC VAT return information digitally via MTD ‘functional compatible software.’

Before the Budget, many people thought the Chancellor was going to slash the registration threshold to £43,000. This would have seen hundreds of thousands more small companies falling into the MTD for VAT scheme. However, Philip Hammond confirmed during his speech that the £85,000 threshold will remain in place until at least April 2022.

If you’re VAT registered but your taxable turnover falls below the threshold, it’s up to you whether or not to opt in and file your information digitally.

 

When exactly does it come into effect?

MTD for VAT will officially apply to VAT return periods beginning on or after 1 April next year. This date has been pushed back until October 2019 for a minority of small businesses with unique requirements.

 

What records should be digital?

HMRC has listed the details that should be stored digitally in your so-called ‘electronic account.’ These include:

  • Company name, address, VAT registration number and any accounting schemes you use
  • Time of supply (the date you must declare output tax on)
  • Value of supply (net value excluding VAT)
  • Rate of VAT charged

 

It’s more important than ever to make sure your digital records are correct, ahead of the changes that come into force in less than six months’ time.

There’s a lot to remember and prepare for, so if you’re a Limited Company contractor who’d rather relax and forget about MTD, why not get in touch with Intouch about becoming one of our clients? We’ll do it all for you, so you can concentrate on what you do best – providing a great service to your clients and earning money!

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Breaking news! Does today’s Autumn Statement harm or help Limited Company contractors?

Breaking news! Does today’s Autumn Statement harm or help Limited Company contractors?

Philip Hammond today delivered his first Autumn Statement as Chancellor of the Exchequer (and his last). He and the Prime Minister continue to compete for control of economic policy and are arm wrestling for the “glory sound bites”. Unless they get on the same page, the losers of this Pyrrhic victory will be you and I.

 

Famous for ill-conceived strategies implemented at a dangerous pace in the face of universal criticism, and ignoring calls for caution from industry experts (who HMRC asked for advice in the first place), HMRC and the Treasury just keep ploughing their own furrow regarding the flexible workforce.

 

Today’s statement offered public sector contractors no surprise good news, and worse no reason for private sector contractors to be optimistic. HMRC’s vision for a level playing field between employees and the UK’s flexible workforce continues to be deployed in the face of all arguments to the contrary. Mr Hammond continues to imply that anyone who is not taxed under PAYE is a tax dodger, and that any independent worker wanting to trade as a Limited Company is only doing so for the tax benefit. I wonder if this is a real belief or a view necessary to keep his job in a post-Brexit, post-Trump world of pragmatic politics.

 

HMRC are JAM (“Just about managing”)

“Passing the buck” is now officially written within the Autumn Statement. When policing employment status compliance gets too tough for HMRC and they end up in a JAM, they outsource the problem to the public sector supply chain (only affecting public sector contractors) and ignore advice from stakeholders telling them it will not work!

 

It’s such a pity that the Chancellor refuses to accept that the positive contribution from a vibrant flexible workforce is widely recognised by stakeholders as essential to the prosperity and economic recovery of UK plc, and therefore dangerous to ignore.

 

“Hammond and May never listen” ( I sound like Jeremy Clarkson)

Throughout the summer HMRC have “consulted” Industry experts, Accountants, Business leaders, Trade Associations and even the man on the “Clapham omnibus” searching for views and comment on key topics including: IR35 reform in the Public sector, and Making Tax Digital.

 

I wish that I could understand why HMRC are not listening. A significant proportion of stakeholder responses on both consultations are consistently negative about:

 

  • the unrealistic timetables being imposed
  • the lack of attention to detail in the implementation guidance
  • the absence of the digital tool for IR35 status assessment
  • the administrative burden being outsourced from HMRC to employers, service providers and taxpayers in an attempt to reduce HMRC’s cost of delivery
  • blanket self-justifications from HMRC of their own actions, which ignore the advice of the wider community and which do not stand up to intellectual scrutiny

 

There seems little evidence from today’s statement that smart people who work at HMRC are using their ears. A consultation process, which has merit in concept, becomes a waste of everyone’s time if consistent contributions from stakeholders across the UK are continually ignored.

 

“Hammond’s way”

So Mr Hammond let’s try it your way: Push on with the policy of forcing independent flexible workers in the public sector into a taxation straitjacket against their will, and against the will of the end hirers. Engagers (even public bodies) want control over the ease with which their business units can expand, they do not want to provide employment rights, and flexible workers are not asking for them. But to do that you will need to continue to vilify and call “tax dodgers” hardworking and proud independent workers, who are trying to put their family’s wellbeing ahead of their own.

 

Make sure that the public don’t work out that by passing the buck for determining Employment Status (because HMRC have failed to find a way to get it right) and by passing the costs of doing so on to the engager or supply chain, saves the Government plenty of cash (because I doubt you will ever find c£400m of “tax gap” that you’re looking for from contractors). Make sure also that the workers don’t blame you for the fact that their take home pay is being reduced, as the supply chain adjusts to protect its margins.

 

Proposals to remove abuse under existing flat rate VAT rules will follow in December and could affect the many innocent parties seeking fairness not abuse.

 

I am not saying that non-governmental stakeholders have exclusive access to crystal balls, but we do have ears and we use them more than you do. Your statement today affecting the contractor community is only as strong as your ability to get the implementation right. If I were to buy you and your colleagues at HMRC a Christmas present, it would be a large hearing aid. If you wanted to give independent contractors in the UK a Christmas present, just turn it on.

 

Want to know more?

Before the statement, we released our own set of predictions and wish lists on what we thought would happen and what we wanted to see announced. So were we correct? We will be sending out our full Autumn Statement review tomorrow, simply leave us your email address and we will ensure you are sent a copy.

 

cat catch the mouse

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.