Making Tax Digital for Dentists
Are you prepared for HMRC’s Making Tax Digital?
Significant changes to the UK tax system are being introduced by HMRC in an attempt to modernise and bring it into the digital era. The changes are being marketed by HMRC under the banner ‘Making Tax Digital’ (MTD) and will affect all individuals paying income tax, VAT and corporation tax.
The government has announced that the scheme will go ahead for VAT registered businesses as of April 2019. However, it will eventually apply to non VAT registered, unincorporated businesses from April 2020 unless they have a turnover of less than £10,000, or if they are regarded as being digitally excluded.
The eventual aim of MTD is for all taxpayers (not just those in self-assessment) to have a digital online tax account. In addition, those who are self-employed or have rental income will be required to complete quarterly summaries to HMRC using approved software and apps.
In the case of partnerships, these will have a ‘nominated partner’ who will be responsible for meeting the reporting requirements.
HMRC had originally said that spreadsheets would not qualify as digital records. However, following consultation it has confirmed that businesses will now be able to continue to use these for record keeping, although it is likely that these will be combined with other software.
Software is already available to businesses and HMRC has clarified that the requirement to keep digital records does not mean that businesses have to make and store invoices and receipts digitally.
Under the new scheme taxpayers will be required to submit quarterly returns within one month of the end of the quarter, with a final ‘end of year’ confirmation due ten months after the fourth quarter. However, HMRC has confirmed that late filing penalties will not be applied for at least the first 12 months under MTD.
Businesses eligible for three line accounts will now be able to submit a quarterly update with only three lines of data (income, expenses and profit).
The government has also chosen to proceed with two further measures to help small businesses. These are increasing the entry threshold for the cash basis to £150,000 and simplifying the rules on capital and revenue expenditure within the cash basis to simplify their tax calculation.
And the cost to business of implementing MTD? The government calculates this will be a one-off transitional cost of £280, and believe the administrative burden will be much less than critics anticipate.
As specialist dental accountants and from our work in this area, we expect MTD will present a significant headache for the majority of dentists for two key reasons: they are not registered for VAT and do not generally prepare monthly management account. For this reason they may find it difficult to plan and think in terms of quarterly reporting. Also onerous will be the task of adapting to a bookkeeping system which allows them to comply with the new, more frequently required reporting criteria.
Two of the most popular online accounting packages for business are Xero and QuickBooks Online. We have tailored versions of both for dentists. These will provide users with the required tools to not only prepare for MTD but to manage their finances more efficiently.
If you would like advice about online accounting for dentists please contact Martin Southern (mjs@morriscrocker.co.uk) or James O’Leary (jol@morriscrocker.co.uk) or call them on 023 9248 4356.
Making Tax Digital is coming – time to move your accounts online now.
