HMRC does not want to see every sales invoice and every expense receipt. Whilst it does not want to see transactional data, it does want accounts summary information every quarter.
What accounts information does HMRC want from unincorporated businesses?
As a minimum, HMRC is looking for quarterly updates to reflect the same categories as currently required by a Self-Assessment return:
- Other business income
- Cost of goods bought for resale or goods used
- Construction industry – payments to subcontractors
- Wages, salaries and other staff costs
- Car, van and travel expenses
- Rent, rates, power and insurance costs
- Repairs and renewals of property and equipment
- Phone, fax, stationery and other office costs
- Advertising and business entertainment costs
- Interest on bank and other loans
- Bank, credit card and other financial charges
- Irrecoverable debts written off
- Accountancy, legal and other professional fees
- Depreciation and loss/profit on sale of assets
- Other business expenses
In reality, it may be best practice to expand some of the categories to help prevent nudges from HMRC.
Kumar is an Orthopaedic Surgeon for the NHS. He also does some private work in two local hospitals. He uses his car for both business and private mileage.
It is extremely important for Kumar to maintain his medical knowledge and to learn about technological advancements, such as 3D imaging. As a result every year he attends specialist conferences in the UK and around the world.
During the first quarter of his accounting year, Kumar has spent £1,000 on petrol and a further £500 on flights to attend a specialist conference in Europe. He flew back from the conference on the same day, so there were no overnight accommodation costs.
Of the £1,000 spent on petrol, 20% of it (£200) is business related. All of the £500 spent on attending the conference is allowable business expenditure. Kumar enters £700 (£200 petrol + £500 conference) in the car, van and travel expenses category.
Kumar is then surprised to receive a nudge from HMRC querying the £700 claim and asking him to check it. He has kept a mileage log, so he knows the petrol claim is correct and he has uploaded the British Airways invoice confirming the cost of the round trip. Kumar is confident the £700 is accurate and decides to ignore the nudge.
However, he could have potentially prevented the nudge if he had split the car and travel expenses into two separate categories. HMRC had only sent the nudge to Kumar to check the car, van and travel expenses because it knew the total claim could include a combination of costs allowable in full (in this case the conference) and costs only partially allowable (the petrol claim).
Further information on nudges is available here
What accounts information does HMRC want from landlords?
As a minimum, HMRC is looking for quarterly updates to reflect the same categories as currently required by a UK property page contained within a Self-Assessment return:
- Rent paid, repairs, insurance and costs of services provided
- Loan interest and other financial costs
- Legal, management and other professional fees
- Other allowable property expenses
A large number of landlords use letting agents to manage properties on their behalf. Letting agents typically collect the rents due and often pay for occasional repairs to a property, on behalf of the landlord, deducting the repair expenditure and their fees from the gross rents collected. The letting agent may then provide the landlord with an annual statement of gross rents collected, less any expenditure. The landlord will then usually take the statement, along with his mortgage interest certificate, to his accountant to prepare his rental accounts.
Quarterly reporting is going to change that type of arrangement. The landlord is going to need quarterly statements at the very least and will need to upload any expenditure receipts.
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