Landlords and Sole traders – Be ready for quarterly returns

Making Tax Digital, the HMRC initiative which sets to make digital, quarterly returns compulsory for all taxpayers, is due to start happening from April 2018. With the announcement of a general election in June, the announcement did not make it into law yet, but the government has announced its intention to pass the legislation in time for an April 18 start, so we feel affected taxpayers ought to start thinking about getting ready.

What will I have to do?

Once the legislation is in place, business and landlords will be expected to provide quarterly updates electronically, plus and End of Period Statement, a total of 5 returns per year.

You will need to use software for bookkeeping and to submit data to HMRC.  You may use a phone App, a spreadsheet, bookkeeping or accounting software, or ask your accountant to do this for you.

Who is  affected, and when?

The current plans are as follows:

6th April 2018: Landlords and self-employed individuals whose total turnover exceeds the VAT threshold will need to submit quarterly returns for income tax and class 4 NIC

6th April 2019: All landlords and self-employed individuals for income tax and class 4 NIC. In addition all VAT returns will fall under Making Tax Digital

6th April 2020: Companies for corporation Tax – Large partnerships for income tax and class 4 NIC

Can I be exempted or delay?

There are some exemptions for the “digitally excluded” – defined as persons who are practicing members of a religious society or order whose beliefs are incompatible with using electronic communications, or people for whom it is not reasonably practical to keep electronic records or use electronic communications. However note the exemption will be of the digital element of the requirements. Quarterly returns will just have to be done manually.

HMRC is also given power to set exemption thresholds, and it is expected that businesses with a turnover of less than £10,000 will be exempted.

Taxpayers may possibly be able to postpone implementation by changing their accounting date to before 5th April 2018 (but we don’t know yet how the legislation will determine staging date)

Self-employed and Landlords could delay implementation to 2020 by incorporating their businesses. This has considerable implications beyond quarterly returns and should not be considered lightly.

What Next

Taxpayers will need to decide how they will deal with the digital returns requirements, and ensure they have appropriate systems in place.  If you need any help, your accountant should be able to provide guidance in that respect.