Major changes are being made to the way in which all taxpayers interact with HM Revenue and Customs (HMRC). The government is referring to these changes as Making Tax Digital (MTD), and they are proposing a staged introduction to the new rules, starting for many in April 2018.
We have prepared and submitted a comprehensive response to HMRC’s consultations on Making Tax Digital with regard to how it impacts our clients and have suggested matters to improve implementation for businesses. We are expecting further announcements to be made over the coming months.
The proposals are wide-ranging, but one of the biggest changes planned is an electronic quarterly report to HMRC of income and expenditure. Where the business is a partnership, the proposal is that one ‘nominated partner’ will take responsibility for the submissions, which then feed into each partner’s digital tax account.
As many legal practices are partnerships, we believe more consideration needs to be given to the practicalities of this. There is a need to maintain and protect the confidentiality of each member.
For legal practices it is a requirement of the Solicitors Regulation Authority that the nominated partner should have an understanding of the business financials, and this will need to be reflected in the Making Tax Digital proposals.
Software providers will play a big part in the changes. HMRC’s current proposals suggest that invoices must be electronically scanned into software, with this software automatically uploading summarised data (not the invoices themselves). It is not currently clear whether bespoke legal software packages are capable of submitting information directly to HMRC, and so it is vital that these software providers collaborate with HMRC, the legal profession and their accountants.
Any legal practices still using manual cash books or spreadsheets are likely to have to upgrade to meet the requirements. We also envisage that many partnership agreements will need updating.
Broadband is still a major issue in many rural areas. Whilst HMRC have suggested an exemption for those with no internet or computer access, it is not yet known how far these exemptions will stretch.
Watch this space for further information and feel free to speak to us about the accounting implications. Contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with a member of our Professional Practices team.
This article originally appeared on the blog of our member firm, Larking Gowen.