20 Jul What is Making Tax Digital?
What is it??
MTD (Making Tax Digital) is the government’s new initiative to transform the current tax system into a fully digital system which will be implemented between 2018 and 2020. It is intended to make it easier for individuals and businesses to get their tax right and keep on top of their affairs – meaning the end of the annual tax return for millions of us. It affects everyone with a turnover of more than £10,000 per year – businesses, self-employed people and landlords with turnovers under £10,000 are exempt from these requirements.
Taxpayers will be required to keep digital records and send HMRC quarterly updates plus a final submission at the end of the year. This means using either an app or an accounting software package to submit your data directly to HMRC. This is not the same as submitting a tax return online, many of us have been doing that for years. The distinct differences are below:
- Bank transactions and other financial information will flow automatically into taxpayers’ digital tax accounts, whether or not they declare that income or those expenses.
- Submissions will need to be made at least quarterly
- Submissions need to be made using accounting software or an app that is integrated to your digital tax account
Digital tax accounts will mean that taxpayers can see the information that HMRC holds and be able to check at any time that their details are complete and correct. It will also mean that taxpayers will not have to give HMRC information that it already has, or that it is able to get from elsewhere – for instance from employers, banks, building societies and other government departments.
Going digital will mean that taxpayers will no longer need to wait until the end of the tax year to know how much tax they should pay. HMRC will collect and process information affecting tax as close to real time as possible, to help prevent errors and stop tax due or repayments owed building up.
These changes are being introduced gradually from next year:
- April 2018 – unincorporated businesses including the self-employed that have an annual turnover above the VAT threshold (£85,000 from April 2017).
- April 2019 – unincorporated businesses including the self-employed that have an annual turnover below the VAT registration threshold.
- April 2019 – those who are registered for and paying VAT
- April 2020 – incorporated companies who pay corporation tax.
Individuals in employment and pensioners will not have to use the digital service unless they have secondary incomes of more than £10,000 per year from self-employment or property.
HMRC state that support has been planned for those who cannot file digitally. They recognise that for some, digital is genuinely not an option and where this is the case, an alternative will be provided. However, no details have been published yet as to how HMRC will deal with those who struggle with IT or do not have access to reliable internet or phone signals.
What do I think?
I’m yet to be convinced that Making Tax Digital will reduce the administrative burdens on business, particularly small businesses. Without doubt, the role of accountants will change and it’s highly likely that their role will become more of an essential advisory one rather than an annual compliance one.