31 July 2018
Making Tax Digital for barristers and chambers
In less than a year, HMRC will be introducing the Making Tax Digital (MTD) scheme to modernise the tax system, making it “more effective, more efficient and easier for customers to comply”.
The first phase will require businesses over the VAT threshold to keep digital records for VAT purposes and submit quarterly submissions from 2019. As barristers qualify as businesses they will be expected to comply with the new scheme.
Businesses under the VAT threshold will not be asked to make the switch to MTD and update HMRC quarterly for any other taxes, until at least 2020.
Find out how this will affect your accounts and taxation.
What does Making Tax Digital mean for barristers?
In practical terms, the MTD scheme will require barristers to make quarterly tax submissions to HMRC, rather than submitting information once a year. You will be given a digital tax account into which financial data will flow.
Key things for barristers to consider:
- You will no longer be permitted to populate the VAT return with figures obtained from chambers. However, HMRC will accept digital links, such as emailing a spreadsheet containing digital records to a tax agent, such as your accountant, so that they can import the data into their accounting software.
Note: HMRC does not consider “cut and paste” to be a digital link.
- For expenses giving rise to reclaimable input VAT, HMRC will consider that functional compatible software that scans invoices received, puts the information in the records. If the image is clear and contains all the detail required for VAT purposes then you do not have to keep the original invoice unless it is required for another purpose.
- Barristers using the Flat Rate Scheme will not have to keep a record of invoices paid digitally.
Compliance through cloud-based accounting software
It is important that you ensure that you are ready in good time as penalties will be charged for non-compliance.
Moving your accounts to a cloud based software system, accessible by your accountant, will be very useful. At the very least, you will need to use a spreadsheet which can be emailed and converted. We can assist you with the design of the spreadsheet, which can be beneficial and save you time and money.
Invoices received can also easily be scanned using a mobile phone. This also saves time on setting up a filing system for paid invoices.
Benefits of MTD and moving to a cloud-based accounting system include:
- Compliance with MTD
- Keeping a closer eye on your tax affairs
- Taking the surprise out of the tax bill and aids financial planning
- Being able to share your accounting information with your accountant remotely
- Improving efficiency and reducing time taken on accounting and bookkeeping
What does Making Tax Digital Mean for chambers?
MTD requires digital reporting to file quarterly VAT returns with HMRC (and eventually this will include year end accounts and personal tax returns). This requires systems to be digitally linked to seamlessly produce and file the VAT return. As most chambers keep the fee records and individual barristers record their expenses, some work needs to be done to establish a link between these systems to create digital returns.
You may authorise HMRC to receive data from, and send data to, an agent, such as your accountant, on your behalf.
For more information about barrister accounts, download our helpful guide.
Is it time you moved your accounts to the cloud?
We have specific experience in barrister accounts and can help you prepare for MTD by April 2019. We do specialise in Xero accounting software and can also support other software systems of our clients’ choice. Contact us to chat through your options on 0115 964 8888 or at firstname.lastname@example.org.
Further information may be obtained from VAT Notice 700/22 Making Tax Digital published by HMRC on 13th July 2018.
The views provided in this article are for general information purposes only. Nothing in this article represents advice of any nature whatsoever. Accordingly, RWB CA Limited does not accept any liability or responsibility for the information contained in this article or any decision or other action that may be taken in reliance upon the information contained within it. RWB CA Limited accepts no responsibility for any errors of fact or opinion and assumes no obligation to provide you with any changes to its assumptions.