Wednesday, Dec 1, 2021

Spotlight: How to make your tax digital - What you need to know

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Last week, the Accountex team welcomed Lenny Barry of HMRC, Evan Jones of Wolters Kluwer Tax & Accounting UK and just under 500 audience members for a live discussion about Making Tax Digital for Income Tax (MTD ITSA).

Lenny works with a wide range of businesses to explain HMRC’s digital plans and to bring customer insights back into HMRC.

Evan works as Lead Product Manager at Wolters Kluwer Tax & Accounting UK. Prior to this his experience was in the accountancy profession across roles in VAT, audit, IT and product management.

Evan asked Lenny a number of questions, posed by our audience ahead of time and also live during the discussion. Here, we summarise the session which contained great insights encompassing topics such as preparations, deadlines, exemptions and communication.

EJ: Lenny, thanks for taking the time to join us today. Can we start by talking about Making Tax Digital for VAT…what lessons have been learned?

LB: It’s fair to say that, at the outset, people were sceptical about MTD for VAT but the reality is that a lot of people were already keeping digital records, and a lot of people were already using software so some didn’t feel too much of an impact.

What we really want to achieve is feedback, particularly from accountants and end user customers. My expertise is not as an accountant so it’s that community who can best advise regarding what will work best in practice. The more people communicate with us, the more we can act on that feedback. We’re not in the business of making life more difficult for people, including ourselves!

EJ: Is it likely that MTD for Corporation Tax will be brought forward?

LB: No, there is currently too much work going on with self-assessment and the VAT “unders” coming in next April. There is no suggestion of bringing CT forward. We are looking at a launch in 2026 with a pilot coming in 2024.

EJ: Some are expressing concern that all clients will have 30-day deadlines following quarter end dates?

LB: For a self-assessment customer whose accounting period is aligned to the tax year, the Quarterly Updates are 6 April – 5 July (due 5 August), 6 July – 5 October (due 5 November), 6 October – 5 January  (due 5 February) and 6 January – 5 April (due 5 May).

What’s important to keep in mind is that the Quarterly Update is not a tax return. It is as close as one can estimate income, expenditure and so on. If your record-keeping software is up to date, it could literally be just a few clicks of a button and those figures will come out. A lot of clients, understandably, want to get things as accurate as possible so they may be thinking of asking an accountant to check the quarterly update before sending. However, an accountant can’t really do that without looking at the supporting records. That role is more applicable at year-end, perhaps. I guess it could be possible for accountants to perform their assurance for each quarter, and that work is “banked” for year end. It may be that such work would be part of the annual fee paid, but that is a discussion for accountants and their clients.

EJ: Are the MTD for Income Tax quarterly returns discrete or cumulative? What will HMRC do with that information?

LB: The quarterly returns are date-ranged so they’re separate – you’d be submitting four separate ones.

In in terms of what we do with the information, it’s providing us with an estimate of what the Treasury cashflow will look like. HMRC is the biggest revenue gatherer for the Government, and we have to validate on a continual basis, as all businesses do. Quarterly updates for self-assessment customers will give us a much more accurate picture of what the tax due will look like, in year, rather than nine months after the tax year end. For example, such information would have been particularly helpful when COVID support schemes were being introduced. The updates will also help us look at potential trends, validate our planning assumptions and all feed into our overall Compliance and Assurance plans.

Customers should also benefit from Quarterly Updates in terms of seeing an ongoing estimate of the tax liability throughout the year and possibly leading to better financial projections for their business.

EJ: How likely is it that the new basis period changes will be in place before MTD ITSA?

LB: We’re trying to do good things and sometimes they overlap. As you know, there is a 10-year tax simplification programme in place, which will cover a wide range of matters. If we took MTD out of the equation, would the change of basis period be a good thing? For many, very possibly. For some, maybe not. More discussion is required with accountants and the professional bodies to establish the best way to approach this, and we await the response to the Consultation that is out at the moment. We are definitely keen to get a consensus and make tax simpler.

EJ: HMRC has said that MTD will transform tax administration to make it easier? For whom?

LB: I think for everyone to a greater or lesser degree. We’re making good progress through VAT. We conducted independent research, published in July 2021, which asked a series of questions about MTD. It demonstrated a very favourable response and a lot of businesses remarked that they could see clear benefits in terms of their VAT being compiled and dealt with faster. It also pointed to a great deal more confidence. We bank online, we shop online…this is the future. We want to try to help people to find ways of doing it that work best for them.

The research findings are published on GOV.UK and are well worth a read – Impact of Making Tax Digital for VAT – GOV.UK (www.gov.uk)

EJ: What sort of exemptions will there be for small clients and elderly clients?

LB: MTD ITSA guidelines haven’t been written yet but there is an existing exemption process for MTD for VAT which will be very similar to the exemptions for MTD ITSA. Please see VAT Notice 700/22 for details: VAT Notice 700/22: Making Tax Digital for VAT – GOV.UK (www.gov.uk).

Existing exemptions from current online filing, or granted for MTD VAT, will be carried forward automatically into MTD ITSA.

Individual circumstances are important. If you think your client may need an exemption, apply for one. If it’s unreasonable or impractical to follow the guidelines, then you could be in line for an exemption.

EJ: What if you’re not exempt but there is a digital challenge?

LB: We currently do online filing for self-assessment. The client may simply go into their accountant with a bag of receipts. The accountant sorts the receipts and the concludes that the client owes £x. In many cases, the amount they owe can be more than they had perhaps thought but, moving forward, the quarterly update will allow the client to see how the numbers are tracking across the year, ensuring that they put money aside to cover any amount that’s owed in the final return.

EJ: What would your advice be around preparing?

LB: You can never start too early! Start to think about your ITSA clients and segment them. Those who are already pretty well set keep digital records and use software; those in the first segment but may need some support or encouragement; those who don’t use software and then those that don’t keep digital records. They may well all require different strategies and approaches.

If you have ideas of what might help you communicate the message, and support your clients, please do let us know as we may be able to help to deliver that content. What would help – webinars for customers, YouTube short video pieces to highlight and explain the key aspects of moving to MTD…we would love to hear from you.

We are keen to get the latest updates to our customers and recognise that accountants will have a key role in this, once agin. We would love any feedback or suggestions.

EJ: A poll conducted during this webinar shows that 76% of those who responded stated that barely any or no clients are currently approaching accountants about MTD ITSA. Does this surprise you? What can HMRC do to impact this?

LB: The results don’t really surprise me as many people do not enjoy change, or see it as something off on the horizon. As part of the preparation, practices need to think about when to raise the matter with their clients. Those who are using spreadsheets, that’s fine and bridging software is another option. There are may ways in which a business can meet its obligations. From our perspective, we’re required by law to write to clients but it’s just a question of timing. If accountants are telling us that feel that the formal notification letter needs to be shared sooner rather than later, we can certainly aim to weave that into our planning. Once again we would appreciate agents’ views.

The post Spotlight: Making Tax Digital – what you need to know appeared first on Accounting Insight News.

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By: Alex Murphy
Title: Spotlight: Making Tax Digital – what you need to know
Sourced From: www.accountex.co.uk/insight/2021/08/19/spotlight-making-tax-digital-what-you-need-to-know/
Published Date: Thu, 19 Aug 2021 13:12:43 +0000

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