As we come out of the pandemic and motor retailers start to think about the road ahead, Making Tax Digital (MTD) should definitely be on your agenda.
There is a real need to get ready for this change now so that you are in control of the process, not playing catch up at the last minute before MTD is upon you.
The UK Government has a long stated aim for the dealings a business has with HMRC to be conducted in a digital form.
This has developed over recent years to include payroll by Real Time Information (RTI) and electronic VAT returns as well as an overall process of digitally linked records for MTD for VAT.
HMRC has just completed a consultation for businesses to introduce MTD for corporation tax.
Motor retailers need to be aware of these potential changes now in order to plan for their implementation.
A pilot will start in just three years’ time with the full system (applicable to all) starting in April 2026.
The key issue is that it will affect all retailers.
The main anticipated changes are:
- The need to make quarterly returns (within one month of the quarter end date) and an end of year tax return using MTD compliant software
- The need to report transactions in a prescribed manner with details still to be confirmed)
- A focus on DMS data that may need to be GAAP compliant
- The possibility to advance claims for loss relief within the quarterly returns and so advance the cash-flow benefits of claims that are made
- No longer a need to separately tag accounts under the iXBRL format as MTD compliant software will undertake this task
- The potential that the accounting and taxation submission dates will become aligned, presumably to the earlier accounting date, in general either six or nine months after a year end
What impact will this have on motor retailers?
Although it is some way off and the detail is likely to change, there is no doubt that MTD for corporation tax will be implemented.
The Government believes that there is a gap of £2.1 billion in tax revenue across the economy that is either lost or deferred because of the current system - particularly in respect of quarterly instalment payments for some of the larger entities that are required to adhere to this regime.
Retailers therefore need to start planning now. Here are some of the areas you need to consider:
- Ensuring that your finance team has experience of both taxation and MTD systems so that they can develop these over the next three years
- Working with your advisers to ensure that your finance teams have received training on the changes and have an action plan to deal with them
- Reviewing your DMS system and working with your software providers to make sure that the system will be MTD compliant at the right time
- Reviewing the output that you provide for your auditors to make sure that it is electronic and is easy to follow i.e. broken down into simple and straightforward accounts
- Being aware of future changes to MTD for corporation tax: it is likely that the rules will develop over time and so finance teams will need to adapt accordingly.
We will be assisting all of our clients’ transitions to MTD for corporation tax over the coming period.
We will provide support across a range of areas such as training for finance teams, sharing knowledge on how to adapt or improve tax technology systems to be MTD ready.
There may also be a requirement to rethink your existing finance team and its capability and structure as the quarterly returns will require a member of the finance team to take responsibility for this area.
Author: Chris Bond, partner, BDO