How MTD will work for businesses with an accounting year that doesn't match the tax year

As an accounting software developer actively working with HMRC to implement Making Tax Digital, we’re always keeping up to date with the impact the initiative will have on our customers. We recently found out more information of particular interest to sole traders whose accounting year does not match the tax year.

Sole traders whose accounting year end is just after the end of the tax year will have to comply with MTD in 2018

Assuming a sole trader has sales over the VAT threshold, they will be required to file quarterly submissions to HMRC in 2018, even if their accounting year end is just after the end of the tax year. For example, a business with a year end of 30th April 2018 will have their first quarterly filing deadline on 31st July 2018 and a business with a year end of 31st May will have a deadline of 31st August 2018.

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This means that businesses with an accounting year end just after the tax year end will be filing quarterly reports under MTD about one year before they’ve filed the return for the previous year.

Sole traders whose accounting year end is just before the end of the tax year will have extra year to comply

If a business makes sales over the VAT threshold and has an accounting year end just before the end of the tax year – for example, 28th February 2018 – their next accounting period will begin on, for example, 1st March 2018. Since the accounting year that starts on 1st March 2018 falls before the mandated roll out of MTD, this business would not have to comply until the start of their next accounting year on 1st March 2019.

This means that a business with a year end just before the tax year end would actually get a whole extra year before MTD compliance becomes mandatory for them.

No penalties in the first 12 months

The good news is that HMRC have also said they won’t be charging penalties for a business’s first 12 months of compulsory MTD, so if you get confused and miss your first filing deadline, it’s not the end of the world.

Also, if your business’s sales are under the VAT threshold, you’ll get an extra year to comply because MTD will start for you in April 2019, not April 2018.

If you are at all unsure of when your business will need to start using MTD, please ask your accountant for help.

Co-authored by FreeAgent's compliance product manager, George Grigolava.


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