MTD will fundamentally transform the accountancy industry. Accountants and clients will need to prepare for the rollout of the second phase of MTD and for how certain tax actions will be completely changed.
From April 2020, businesses will be required to keep digital records and submit quarterly updates online to HMRC
(subject to confirmation by the government).
Quarterly reporting is a key element of MTD for Income Tax. It will change the current process of submitting information to HMRC once a year, making it a task that will have to be performed five times per year (including the end of period submission).
A significant advantage to the taxpayer is that this will give them as close to a real-time view of their tax position as possible. A significant challenge to the accountant, however, is doing the same work they complete annually, quarterly, without increasing cost to client or slowing efficiency. While the deadline for quarterly reporting seems far from now, the change is so significant, the earlier you can prepare for it, the better.
End-of-year and end-of-period submissions
Individuals and businesses will need to send an end-of-period submission for their businesses and property income.
This end-of-year submission will need to consider the quarterly updates and any final necessary adjustments. This is often referred to as the ‘fifth quarter’.
This submission not only needs to take account of all the business data from the quarterly reporting, you will also need to digitally collect any other income, from multiple sources (such as banks), and make sure your client validates the information.
Income Tax pilot
Sole traders who only gain income from one source can voluntarily register for the Income Tax pilot.
Instead of filing a Self-Assessment tax return, they would be requested to keep their business records digitally and send Income Tax updates to HMRC. This will mean that these individuals will see an estimate of how much tax they might owe as the system is updated, rather than waiting until the end of the tax year.