24 May Partnership & Partners and Making Tax Digital
In August 2016, the government published their proposals on how businesses will maintain their accounting records for tax purposes in the future and also how businesses will report their profits to HMRC. At the end of January 2017, after consideration of suggestions made by interested parties, revised proposals on many aspects of the new regime were published.
At the moment, businesses keep their accounting records in a variety of ways, from paper records, spreadsheets or accounting software. Under MTD for Business, (MTDfB) businesses will be required to:
- maintain their records digitally, through software or apps
- report summary information to HMRC quarterly through their ‘digital tax accounts’ (DTAs)
- make an ‘End of Year’ declaration through their DTAs.
DTAs are like on-line bank accounts – secure areas where a business can see all of their tax details in one place and interact with HMRC digitally.
Please see our updated blog regarding the new Making Tax Digital Timescale released in July 2017 – read it here.
When does MTD for Business apply to you?
In the Spring Budget, the government announced its proposed timetable for the introduction of MTDfB. Unincorporated businesses with annual turnover:
- above the VAT threshold (£85,000 from 1 April 2017) will need to comply with MTDfB requirements from the start of accounting periods which begin after 5 April 18
- at or below the VAT threshold but above £10,000 will need to comply from the start of accounting periods which begin after 5 April 19.
A business with annual turnover of less than £10,000 is exempt from MTDfB.
At EA Assist we work with a wide range of business entities including Sole Traders, Partnerships and Limited companies providing digital bookkeeping and software solutions that are compliant with all the new government Making Tax Digital regulations.
We can advise you on the best product for your business, help you get set up and introduce you to a wide range of apps and add ons to compliment the software saving your time and making sure you are fully compliant with minimal time and effort to yourself. Our staff are both Xero and Quickbooks accredited and will be on hand to help you set up and train you in your new software package.
Contact us now to find out about our MTD client workshops on 01379 646943 or email firstname.lastname@example.org.
How do partners and partnerships fit into this scheme?
The principles of the proposed system for partners and partnerships are:
- the partnership, rather than each partner, will be responsible for the central requirements of MTDfB (ie keeping a record of each transaction, providing quarterly summary updates and End of Year information)
- a nominated partner will fulfil these obligations
- the nominated partner will need to inform each partner of their share of profits by ‘pushing’ the information to each partner’s DTA.
HMRC recognises that there are special problems in larger partnerships and so the reporting of business profits will not change for partnerships with a turnover of over £10 million until 2020.
There will be however the need for such partnerships to include the current (nine box) VAT return through the partnership’s DTA from April 2019.
What are digital records for the partnership?
A digital record is a record of data for each transaction of the business. The proposed minimum required data will be:
- invoice date
- invoice value
- income or expense category
- deducted amount / percentage for expenses.
Retailers with high volumes of low value cash sales transactions will be able to just record the trading date, gross cash takings and income category.
Software that can be used may be a smartphone app or software on a tablet or a desk-based computer. Software such as Receipt Bank will scan paper invoices and receipts direct into the software, using a smartphone camera. After an initial phase of manually assigning transactions to income or expense categories, the software will start to recognise regular items and automatically assign them automatically.
Under the original proposals, HMRC envisaged that a digital record would include not only a record of each item of income and expense but also evidence of each transaction such as copies of invoices and receipts. In the revised proposals the requirement to keep digital records will not include an obligation to store images of invoices and receipts digitally.
Businesses will need to use software appropriate to their business requirements. For example, a business that is registered for VAT will need the software to cope with the VAT scheme it uses, and a partnership will need software that can record the partners’ details and profit shares.
Quarterly returns for the partnership
Once all the relevant data for a quarter has been compiled into the software, the business will then feed this data directly into HMRC systems. The information that will be sent to HMRC will be summary data for the quarter, not all income and expense items. It is envisaged that the analysis of the data will be similar to the existing categories in the Self Assessment tax return. Smaller businesses will be able to prepare an update that contains only three lines of data – income, expenses and profit.
When the quarterly update is due, businesses will have one month to compile their records and complete the update.
What about a tax return for the partnership?
Throughout the year, businesses will have provided HMRC with regular updates, however, many businesses will need to make adjustments to that information, for example to make claims to reliefs or allowances, such as capital allowances. Businesses will then make a declaration that everything is complete and correct as regards their business – an ‘End of Year’ declaration. The business will have 10 months from the end of their period of account (or 31 January following the tax year if sooner) to complete their End of Year declaration.
If a partnership has any other income such as interest received or property income, the partnership will need to record and report all this income as well. The intention is therefore that the End of Year declaration effectively becomes the Self Assessment tax return for the partnership.
How we can help you
Please note that, at the moment, you do not have to do anything in respect of these developments. However as always, its good to be prepared. If you are not currently using a software package for bookkeeping and accounting then contact us. There is a wide range of products available and we will ensure you have the right software package for your business needs.