Making Tax Digital (“MTD”) is HMRC’s ambitious project to shift the UK’s tax system onto a totally digital platform, with more frequent updates and more opportunity for HMRC to analyse and review the information presented to them.
HMRC’s guidance is very clear that as well as benefiting taxpayers by streamlining the administration of their tax affairs, it also expects the new regime to help them pay the right amount (i.e. more) tax.
The proposals as they stand look flawed both in terms of the how realistic the timescale of the implementation is, and the scale of the benefit to the exchequer in collecting more tax.
Furthermore, the costs and inconvenience to taxpayers of complying are greatly underestimated. Nevertheless, HMRC are clearly going to press ahead.
Our key messages are therefore:
- This is going to happen
- You may need to adapt
- We can help
MTD will mean that all taxpayers will have access to an online personal tax account. This will draw together all the information held by HMRC – their personal details, PAYE records, bank interest, state pensions and other benefits, etc – making it easier for them to complete their tax reporting obligations and stay on top of their tax affairs.
Depending on their circumstances, they will be obliged to send to HMRC details of their other income either annually or quarterly, so that following the year end rather than file an annual tax return, they will complete an end of year review of information already held on their account.
Implications for businesses
All businesses – including rental income – with turnover exceeding £10,000 per annum will be required to file information digitally.
MTD is very much pushing taxpayers towards using accounting software, ideally cloud based. In the case studies HMRC provide, the business owners’ headaches are miraculously solved by implementing accounting software.
Happily the vast majority of our clients are doing this already, so the move to MTD will be one of adapting to the new system rather than fundamentally changing the way they maintain their accounting records.
For those not using accounting software, a spreadsheet option will be available, but we believe this will be an opportune time to have serious think about moving to a cloud based accounting package.
It will mean a change in approach; our own involvement will in most cases need to spread through the year for those clients where we are not doing this already, with less time spent at the year end.
It was announced in the Spring 2017 Budget that the start date for sole trade and partnership businesses and rental income with turnover below the VAT threshold is being put back until 5 April 2019, so the dates when MTD must be adopted are now:
5 April 2018 for Sole traders, partnerships, and rental businesses with turnover above VAT threshold
5 April 2019 for Sole traders, partnerships, and rental businesses with turnover above £10,000 but below VAT threshold
5 April 2019 for VAT
5 April 2020 for Corporation tax
For more information, please contact either:
0117 928 1960
0117 928 1973