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Making Tax Digital (MTD) is a government initiative that sets out a bold vision for 'a transformed tax system and the end of the tax return' by 2020. Not sure what it means for you? Here's what you need to know…
What is MTD?
MTD is all about making tax administration more effective, more efficient and easier for taxpayers, through the implementation of a fully digital tax system.
The roll-out of the initiative has already begun. Every small business owner and individual taxpayer now has access to a digital account that they can use to check their records and manage their details with HMRC.
Further changes are planned in the coming months and software providers are actively engaging with HMRC to help shape this process and simplify the shift for small businesses.
A MTD pilot scheme is scheduled to begin in April 2017, with a phased rollout to unincorporated businesses starting in April 2018 and full implementation of the initiative expected by 2020. By this time you should see the following major changes to the way you manage and report your business taxes:
• Through your digital account you'll be presented with a complete picture of your business's tax affairs and you'll be able to manage all of your liabilities at the same time, in the same place.
• HMRC will collect and process information affecting tax in as close to real time as possible. This should prevent any tax due or repayments owed from building up.
• You'll no longer have to wait until the end of the tax year to know how much tax you have to pay.
Jul - Dec 2017 Digital tax accounts show taxpayers an overview of their tax liabilities in one place.
Jul - Dec 2018 Most businesses, self-employed people and landlords start updating HMRC quarterly for income tax and National Insurance obligations through accounting software.
2019 Most businesses, self-employed people and landlords start updating HMRC quarterly for VAT obligations through their accounting software.
2020 Most businesses, self-employed people and landlords start updating HMRC quarterly for Corporation Tax obligations through their accounting software.
It is currently planned that an exemption based on turnover of less than £10,000 will apply.
• Know where you stand - with a full picture of your business's tax affairs in your digital account.
• Save time - by having access to all your business's tax info in a single place.
• Save hassle - by managing all your business tax affairs online.
• Plan and budget more effectively - with a real-time calculation of how much tax you owe.
You'll be required to use digital tools, such as software or apps, to keep records of your income and expenditure.
These tools use the data from your day-to-day business activity to build an accurate picture of your business's tax data, highlighting any possible errors and offering prompts for information that might otherwise be overlooked.
Once your software has compiled the relevant data, you or your accountant will then submit it directly to HMRC, either via a computer or a smartphone.
Your accountant should be happy to talk through the options with you and explain how they plan to work with you as MTD is rolled out.
Remember, this is going to happen and the sooner you start the easier the transition will be.
For us at Corrigan and Co Ltd, it was the focus Philip Hammond gave to the training of the next generation - the T Levels.
The self employed face an increase in their national insurance contributions with the Chancellor setting disparity between payments made by the self-employed and the employed. He neglects however to recognise the added burdens and risks faced by the self-employed and the reduced benefits for example, sick pay, maternity pay and holiday pay all of which are received by the employed bu not by the self-employed.
We are always looking for ways to help you pay your fair amount of tax and if you in receipt of dividend, either from your company or from a share portfolio, then the reduction in the dividend allowance will add to the already increased amount of tax you will be paying.
For those of you with children in childcare, the Tax Free Childcare account may seem like the perfect solution, BUT A WORD OF WARNING for those of you who are employed (employees and company directors) 2 in every 3 will be worse off when compared with the existing Employer Supported Childcare voucher Scheme.
For more detail on this Spring Budget, you can contact us directly for a copy of our latest newsletter.
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