Do you remember the introduction of Self-Assessment? It was a complete change in the way that tax returns were completed. Before then the tax returns did not actually provide HMRC with much detail. In the employment section, we used to write ”per PAYE” and in the self-employed section we would write “per accounts”. It was a very simple process. That was back when we also submitted actual accounts to HMRC.
Then self-assessment came along and we actually had to fill in all the income and expense claims in detail. Along with this came the system of payments on account, and after more than 25 years I still have to explain that to some people.
The expansion of the internet then facilitated online filing, a godsend in January. It effectively gave us up to 4 extra days ahead of the deadline as we did not need to post any returns. It also meant that we did not need to watch the weather forecast in case of any weather-related delays to the post.
For those of you who are a bit more internet savvy, we can now upload your tax return checklists to the cloud, ready for you to provide the specific information requested based on your last year’s return. We then import that to our own computers to complete your return, before uploading it back to the cloud for you to approve online. We then submit it online to HMRC.
This is technology making life simpler for everyone, provided you have the technology and are prepared to use it. It also means that we can very easily prepare UK tax returns for anyone and from anywhere.
So, what’s next?
In 500 working days, we will enter a whole new ball game. This is likely to be as big a change in the tax reporting system as the original introduction of Self-Assessment.
Now, if you are a partnership you can switch off for another year. If you trade as a company, that could be at least another 2 years. The big change that is coming on 6 April 2024 is MTD for Income Tax Self-Assessment also known affectionately as MTD ITSA. If you are a sole trader or landlord, you need to pay attention!
From 6 April 2024, this is what we expect the tax reporting world to look like.
You will be making quarterly submissions comprising a summary of your accounting records for the calendar quarter by 5 July, 5 October, 5 January, and 5 April each year. Everyone will submit at the same time, so no stagger as we have with VAT returns. You have a month to make the submissions.
At the moment we expect these quarterly submissions to be separate from your VAT returns, although they may well be submitted at more or less the same time.
Once you have submitted the 4 quarterly summaries, an End of Year Statement will be required in respect of each income source. This is effectively your accounts as prepared now, plus any claims for capital allowances. This must be submitted by 31 January following the end of the tax year and will include a declaration that the information is correct and complete.
Your accounts will probably be prepared to 31 March each year to make reporting easier. If you use a different year end you will need to apportion the profits from 2 sets of accounts to give you the profit for the reporting period i.e. 31 March or 5 April. If there is insufficient time to get the second set of accounts done then the End of Year Statement will be estimated and updated at a later date.
Finally, you will be submitting a Final Declaration that replaces the current Self-Assessment Tax Return. It will contain other income and claims and will also detail all of your other income which corresponds to the current tax return and will also include a declaration that the information is correct and complete. This must also be submitted by 31 January after the end of the tax year, just like the Self-Assessment Tax Returns now.
That all sounds straightforward. You just put all your records into us and we submit everything for you. Unfortunately, it is not that easy. The quarterly submissions must be from accounting software, and you must have kept all your records on that software. This is the big change!
No more paper records. No more carrier bags of papers given to your long-suffering accountant at the end of the year. Your records must be put on the computer at least quarterly. That does not mean that you have to do it, but someone does. There will be penalties if you do not keep the appropriate digital records.
You have 500 working days to get ready.
By the way, this is only half the story. If you have a yearend that is not currently 31 March or 5 April, there are transitional arrangements as we move to the new system that could mean that you get taxed on more than a year’s worth of profits in 2023/24. More on that another time.
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Alan E Long
The Long Partnership