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Budget: MTD pause for those below VAT threshold

8th Mar 2017
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MTD paused for smallest businesses
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MTD paused for smallest businesses

The Chancellor bowed to public demand in his Budget speech by announcing a 12-month delay in the original Making Tax Digital (MTD) timeplan for unincorporated businesses turning over more then £10,000 to start filing online from April 2018.

HMRC documentation confirmed that a one year deferral from mandating MTD for business for unincorporated businesses and landlords with turnovers below the VAT threshold.

"Only those businesses, self-employed people and landlords with turnovers in excess of the VAT threshold with profits chargeable to Income Tax and that pay Class 4 NICs will be required to start using the new digital service from April 2018," the tax department said.

Ahead of the Budget Rebecca Benneyworth speculated that the Chancellor might opt for this formula. “Not because I know the answer, but it seems to reconcile the tension about what they want to do,” she said.

As chair of HMRC’s Digital Advisory Group, Benneyworth has been lobbying the tax department along with several professional tax bodies to bring in the over-£83,000 [£85,000 from 1 April] first to mandatory quarterly reporting and then to phase in smaller businesses a year later.

“Start with digital record keeping and don’t worry about deadlines and penalites until we know it’s up and running and can get all the wrinkles ironed out,” she said.

Benneyworth advised practitioners supporting small businesses not to go to sleep for the next 12 months, but to use the extra time to start planning and moving non-digital clients into online record-keeping in good time.

Many within the profession reacted with relief during the speech before heading to HMRC's website for confirmation. 

Even Xero's UK managing director, Gary Turner, who some on AccountingWEB wrongly accuse of being some kind of MTD Svengali joined the chorus:

"In my discussions with HMRC, accounting industry bodies and after speaking with hundreds of accountants over the last few months, I had grown very concerned that such a short migration window was likely to be disastrous for all concerned, and HMRC really had no alternative but to soften their position," Turner said afterwards.

"A 12-month extension will still mean a lot of work must be done in a compressed timeframe, but it's still a lot better that what was on the table."

But no tax measure every arrives without some friction. In our live Budget panel, AccountingWEB member TonyDJ griped, "So we have all been busy getting clients ready and now we have to tell them not to bother. So much for planning - what lesson does that send to those who plan ahead?"

A lively debate is already underway both in the comments section below and in the MTD: Extra Year Any Answers thread 

AccountingWEB's Spring Budget coverage is brought to you in association with TaxCalc. Visit our Budget page to keep up with all the predictions, debates and post-Budget analysis.

Replies (91)

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By debrahuzzard
08th Mar 2017 14:07

so who is in MTD in 2018? is it unincorporated businesses who are exempt from VAT but with turnover over VAT threshold? seems to still be 2019 for VAT registered businesses. I have one partnership which runs a nursery school which seems to fall into that category.

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By Eric T
08th Mar 2017 14:20

Sole trader with sales of £65,000 and rental income of £25,000 - combined £90,000.

Do they have to submit quarterly returns - even though neither activity exceeds the threshold?

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By kenny achampong
08th Mar 2017 14:35

I was under the impression that sole traders with 31 March year end can already delay until April 2019 (ie every sole trader in reality) so will this mean April 2020 for them ?

And landlords now delay to April 2019 ?

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John Stokdyk, AccountingWEB head of insight
By John Stokdyk
08th Mar 2017 14:35

Sorry Deborah, I need to go back and read the documentation to clarify your conundrum (which I think is right). Here's the link: https://www.gov.uk/government/publications/making-tax-digital-for-busine...

But on Eric's question, Rebecca B said in the context of the £10k exemption threshold: "If [property and other income] add up to more, you’re in."

I would imagine that the principle would extend to the new threshold too. If I find confirmation, I'll be back.

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By Eric T
08th Mar 2017 14:45

That would be great.

I expected that it does mean that the threshold is based on combined trading and rental turnover figures.

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By GW
08th Mar 2017 15:04

So what if:
Self-employed + property income over VAT threshold and self employed loss or low so no class 4 NI paid?

How will you know at the begining of the year if you are going to be liable to pay class 4 NI?

I guess we'll have to wait fot the finance bill

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Replying to GW:
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By debrahuzzard
08th Mar 2017 15:21

I suspect that is another example of HMRC loose use of language (for instance talking of earnings for level to transfer married allowance instead of income). I expect it means having a source of income that would be liable for class 4 albeit at 0% if profits are under the threshold. however that still would not explain the position for someone with a large property portfolio and rents over the vat figure.

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Replying to debrahuzzard:
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By JamesLambert
08th Mar 2017 15:25

My reading of it is that someone with large property portfolio with rental income over vat threshold will be into MTD from April 2018.
Per the budget notes"The government will provide an extra year, until April 2019, before Making Tax Digital is mandated for unincorporated businesses and landlords with turnover below the VAT threshold."

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Replying to JamesLambert:
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By debrahuzzard
08th Mar 2017 15:28

hi James, good to hear from you! yes, quite agree, just the notes do say you have to be paying class 4 to be in MTD which seems to be a nonsense.

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Replying to debrahuzzard:
Tornado
By Tornado
08th Mar 2017 17:19

I am over 65 and therefore do not pay Class 4 NIC.

Yippee, I will never have to operate MTD !!!

EDIT : In case some people think I was being serious, I am sure that the mention of Class 4 NIC is a red herring and really the reference should have just been to Income Tax, so no exemption for me.

MTD will catch everyone eventually, even those 45 million people who are taxed under PAYE, as that is the long term plan.

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Replying to Tornado:
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By debrahuzzard
08th Mar 2017 15:49

wonderful!!! it has been my pensioner clients I have been most concerned about!!! usually I tell people I cannot comment on the budget speech until I have read the press releases. this time it just made it worse, what with saying applies to ALL businesses with turnover over VAT threshold from 2018 then saying vat registered businesses from 2019 whilst saying all landlords over the threshold as long as the pay class 4!! thank God for people like John and Rebecca who plough through this rubbish for us!

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Replying to debrahuzzard:
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By JamesLambert
08th Mar 2017 15:35

Hi Debra. Good to hear from you too! I had missed that point but at the end of the section of guidance it says:

"This means that only those businesses, self-employed people and landlords with turnovers in excess of the VAT threshold with profits chargeable to Income Tax and that pay Class 4 NICs will be required to start using the new digital service from April 2018."
This seems to be what they are actually expecting and the whole Class 4 NIC thing is a red herring

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Replying to JamesLambert:
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By debrahuzzard
08th Mar 2017 16:00

yes, think the class 4 was just poor use of language and not worth getting excited about. but it still says in places all businesses over the VAT threshold but later says not if VAT registered. will wait for those who know more than me to clarify before I start telling clients. think the only things I am really sure about is 2020 for companies and 2019 for total gross turnover inc rents between 10000 to 85000.

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Replying to debrahuzzard:
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By JCTallent
10th Mar 2017 13:41

The reference to Vat registered businesses in the 3rd item is referring to MTD for Vat, not Income tax. It is not worded very clearly and seems to read like it's still referring to Income Tax which most people think of when referring to MTD.

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By barbaracordner
08th Mar 2017 15:17

Class 4 impact?

I am confused about the mention of paying income tax and Class 4 - so does this mean that Making Tax Digital does not apply to landlords who do not pay Class 4?

But there is a sub category of those with more than £10,000 property income? are they only brought in to MTD if they also pay Class 4 on self employment?

I am not sure this is correct, so therefore does this mean that the first category will apply to landlords with turnover above the vat threshold???

I think its going to be very difficult to assist in advising and implementing making tax digital when it is presented in such an unclear way

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Replying to barbaracordner:
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By JamesLambert
08th Mar 2017 15:22

MTD is relevant to Landlords with income over £10,000 but for those with income below the VAT threshold are deferred until April 2019 (unless as mentioned above they also have self employed profits which take them over the VAT threshold).

Basically (on the current timescales) everyone over £10,000 of income will be into MTD within next 25months.

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By ireallyshouldknowthisbut
08th Mar 2017 16:09

.

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Replying to ireallyshouldknowthisbut:
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By debrahuzzard
08th Mar 2017 16:25

sorry but it is only class 2 that is going, the class 4 is the one going up to 11% from 2019. that is why I was suprised no increase in the rate of div tax to match the increase in nic. perhaps he is saving that one for the autumn!

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Replying to ireallyshouldknowthisbut:
Tornado
By Tornado
08th Mar 2017 15:57

It is Class 2 that is being abolished from 2018. Class 4 continues and actually increases over the next few years.

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By mfbrown185
08th Mar 2017 15:37

So, no movement in the threshold for unincorporated business's joining MTD? It still remains at £10,000 presumably?
I thought that we were likely to see some increase in this?

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Replying to mfbrown185:
Tornado
By Tornado
08th Mar 2017 16:02

There have always been compelling arguments to increase the MTD threshold to that of VAT registration and those arguments are still valid.

I for one only see today's concession as part of the battle won against the unworkable aspects of MTD, and will continue to fight for a fairer and more practical approach to the eventual introduction of a more digitally based Tax Administration System.

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By mrme89
08th Mar 2017 15:41

'Even Xero's UK managing director, Gary Turner, who some on AccountingWEB wrongly accuse of being some kind of MTD Svengali'

I don't think Gary has been wrongly accused of anything. I think it is very fair to say that Xero, and other software providers, will monetise greatly from MTD.

Although today's announcement wasn't really of any great surprise (still welcomed), there will be some adjustments to sales forecasts by the software co's in the coming days / weeks.

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Replying to mrme89:
Tornado
By Tornado
08th Mar 2017 16:05

"I don't think Gary has been wrongly accused of anything. I think it is very fair to say that Xero, and other software providers, will monetise greatly from MTD. "

And possibly that money will flow out of the UK.

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Jennifer Adams
By Jennifer Adams
08th Mar 2017 16:22

So...these are caught for 2018...
1. Landlords whose income alone or together with any employment and/or self employment exceeds £83K turnover
2. those self employed whose turnover is in excess of the limit but only if you pay Class 4 NIC ie you dont pay because you pay enough under Class 1 or you are a pensioner.
Have I got that right?

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By keith_j
08th Mar 2017 16:40

The press release states that a business joins in April 2019 "if they are registered for and pay VAT"
On a literal interpretation this means a business making zero rated supplies and who receives VAT repayments joins in April 2018!

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By paulathome
08th Mar 2017 16:46

For incorporated businesses, if VAT registered for VAT - MTD applies from 1 April 2019 or 1 April 2020?

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Replying to paulathome:
Tornado
By Tornado
08th Mar 2017 17:26

As a guess (details to be published later I believe). VAT will need to be submitted by EVERY BUSINESS using MTD compliant software as from 1st April 2019.

So even though incorporated entities will not be required to submit quarterly reports from MTD compliant software until 1st April 2020, they will have needed to be using MTD complaint software from 1st April 2019.

It sounds bizarre but that is my interpretation. We need to wait and see exactly what the legislation says in order to get the correct picture.

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John Stokdyk, AccountingWEB head of insight
By John Stokdyk
08th Mar 2017 16:49

HMRC’s Spring Budget MTD announcement says the requirement to file quarterly income tax and NIC updates from April 2018 if they turn over more than the VAT threshold. Non-exempt businesses below that threshold will come online from April 2019.

The Finance Bill (due later this month) will include further stipulations on how to keep digital records and categorise expenses. The latter will most likely be the current headings on SA self employment form. It will also set out how businesses should calculate their taxable profit based on reliefs an allowances, and the legal framework governing quarterly updates and end of year updates finalising the taxable profit.

Rebecca Bennyworth told us: “Irrespective of whether you’re VAT registered, if your turnover exceeds £85,000 on 6 April 2018, then you will be required to go into the MTD mechanism from the first accounting period starting on/after 6 April.

We're working on another piece explaining how the mechanics are likely to work when VAT-registered businesses go online in 2019.

In the meantime, however, I don’t see anything in the paperwork where it says you will be exempted from MTD if you don’t pay Class 4 NICs.

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By mabzden
08th Mar 2017 16:53

I don't see the point of the delay myself. The MTD systems will still need to be in place by April 2018, and the group we've been told would most benefit from the new regime has been left to stuff their receipts in a shoe box for another year.

Meanwhile unincorporated businesses who already report quarterly (via VAT Returns) will be forced to do quarterly MTD submissions to make sure the systems work.

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By johnjenkins
08th Mar 2017 17:02

We are, of course, assuming that the software will be up and running and the 400,000 self-employed taking part in the trials will have found it all to be tickity boo.
This is the start of HMRC realising mandatory MTD is [***].

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Replying to johnjenkins:
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By mabzden
08th Mar 2017 17:10

Yes, complete [***] rubbish.

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By TaxSpud
09th Mar 2017 09:15

Incredible that this new guidance is so poorly written that even professionals can't work out exactly who is in MTD from April 2018.

And will the one year delay mean self assessment returns under the old rules will now be largely required for the year to 5 April 2019 with another hectic January to follow?

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By david.bransbury
09th Mar 2017 12:26

The MTD timetable as I see it is

From April 2018
Individuals who pay income tax on self employment income or rental income where they total takings (net of VAT?)/income (and not profits) from either source is greater than £85,000. This is regardless whether they are VAT registered or not.

From April 2019
Individuals who pay income tax on self employment income or rental income where they total income (and not profits) from either source is greater than £10,000.

All VAT registered business to submit their VAT figures through MTD. I guess submitting VAT returns through the HMRC website will stop and will have to be direct from your software.

From April 2020
Companies to submit their quarterly income and expenses totals for corporation tax purposes. I also expect dividends voted also be reported and which shareholders received them.

I guess trusts will also come into these rules. So a discretionary trust with a property portfolio that generates £100,000 of rental income will be affected from April 2018. Does anybody know.

What about a pension scheme such as a SSAS or a SIP that rents out a commercial building will they be affected by MTD by April 2019.

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By johnjenkins
09th Mar 2017 12:37

There is obvious doubts in the HMRC minds that the software, not only won't be tried and tested, won't even be ready by April 2018. So I would think that nothing will happen until April 2019, at the earliest, for any business.

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By mabzden
09th Mar 2017 12:53

Realistically, can the government delay the introduction of the SA bit again?

Is Hammond really going to stand up in the November budget and say the plans are changing again, only eight months after the last change and five months before the system is due to go live?

Personally I think he'll look a bit of an a*se if he does.

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By Eric T
09th Mar 2017 12:52

The quarterly returns for MTD are based on strict calendar quarters. VAT returns, as we know, are not based on strict calendar quarters. So, when the VAT return is abolished, this means EVERYBODY has to bring their VAT periods into line with the calendar quarter periods, if they don't already do so.

One of the plus points of the VAT system was that traders could chose what quarter periods to operate to suit their own business needs. Obviously, that principle has now been abandoned.

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Replying to Eric T:
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By david.bransbury
09th Mar 2017 13:09

"The quarterly returns for MTD are based on strict calendar quarters"
- sorry I don't think that it correct. I thought you had to report at least 4 times a year which is roughly based on your accounting period. So a partnership with a 30 April 2017 year end, will start MTD from 1 May 2017 and report their first three months to July 2017 in August 2017.
I agree that the MTD periods and the VAT periods will have to be the same but you can vary either to what periods you prefer.

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By Eric T
09th Mar 2017 13:24

So MTD returns don't have to be to strict calendar quarters?

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Replying to Eric T:
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By david.bransbury
09th Mar 2017 13:41

This was the government response to the consultation responses.

Government response
27. The government wishes to provide sufficient flexibility for businesses to manage their multiple priorities within the context of requiring a regular flow of update information. Businesses already have the flexibility to choose their periods of account and will have the flexibility to change their update periods, as suits them best.
28. The three month period plus the one month submission deadline gives a four month time span, which the government believes should generally be sufficient to accommodate any particularly busy period in the annual business cycle.
29. The government also wishes to provide a degree of flexibility to complete an update before the quarter end (where, for example, a business is going on holiday or trading is complete for the quarter), so it will be possible to submit an update up to 10 days before the end of the quarter, for the whole quarter.

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By Eric T
09th Mar 2017 13:41

If quarters other than calendar quarters are allowed, obviously, that makes life messy for traders who also have rental income.

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Replying to Eric T:
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By david.bransbury
09th Mar 2017 13:49

Sorry I don't have the answer to that one. Very good question.
Will it all have to go through the same software.
Can a partnership use something like Xero etc. which is kept by in-house staff/an external bookkeeper but a partner with rental income will only want their accountant knowing the details of this income.

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Replying to Eric T:
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By bendybod
10th Mar 2017 10:41

Why? Surely they either bring their trade in to line with their rental income, if it isn't already, or they report their rental income on a receipts basis through the year and then correct it in the end of year return which they have 10 months to submit.

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By johnjenkins
09th Mar 2017 13:52

As business will be able to choose their own basis period then there shouldn't be a problem. Accountants would be able to choose end of November due end December, then end February due end march if you get my drift.

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By Eric T
09th Mar 2017 14:34

These quarterly returns are not just about "businesses".

They are required for other activities too - some of which will have compulsory calendar quarter returns (such as rental income ) and some which will be "a quarter period of your choosing".
If you have a number of different of sources income you may have multiple different quarterly accounting periods to deal with.

And of course, that would result in multiple DIFFERENT annual submissions as well - all being submitted at different times.

What was so wrong with Self Assessment?

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Replying to Eric T:
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By johnjenkins
09th Mar 2017 15:12

There cannot be different annual submissions because the Tax date hasn't changed. What is due up to 5th April is paid the following January. That bit hasn't changed.

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Replying to johnjenkins:
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By Eric T
09th Mar 2017 15:20

I'm not talking about how tax is paid. I'm talking about the requirements to submit annual figures within ten months of the relevant year end.

The filing window for the annual submission is different depending on when the "year" ended. If the activity is a sole tradership or a partnership with (say) a 30 June year end - then the filing period is the ten month period from 1 July to 30 April.

If the activity is in respect of rental income, then the year is fixed as having ended on 5 April - and the filing window will be ten months from that date.

That's how I have read how the annual submission rules work.

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Replying to Eric T:
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By johnjenkins
13th Mar 2017 09:28

I'm not talking about how tax is paid. I'm saying that the finale basis for working out the tax liability hasn't changed. That's why there is a 5th filing to adjust the other 4 filings.

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Replying to johnjenkins:
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By daveforbes
13th Mar 2017 10:28

The "5th" filing is different to the 4 (or more) earlier filings. The periodic filings are income and expenses (boxes 15 to 45 of the full self employed pages). The year end filing is not for income and expenses but for adjustments such as farmers averaging, capital allowances etc, (boxes 46 onwards on se pages), it does not include error corrections to the income and expenses filings. These would be corrected by resending the transmission that contained errors.

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Replying to daveforbes:
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By Eric T
13th Mar 2017 10:42

Is the balance sheet now considered obsolete?

And what about "non tax" annual adjustments - such as provisions for depreciation?

Or is the concept of actual double entry accounting also now obsolete?

Or, if it's not, are we now entering an era where two different types of accounts need to be prepared - one that satisfies tax requirements and one for everything else?

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Replying to daveforbes:
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By johnjenkins
13th Mar 2017 15:30

I stand corrected, my communication skills are waning.
However the point I was making is that the it is the 5th filing that decides the tax liability regardless of year end.

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