Making Tax Digital is a new piece of legislation that sets out HMRC’s vision to transform the UK tax system into ‘one of the most digitally-advanced tax administrations in the world by 2020.’
HMRC will achieve this by moving all personal and business taxation online.
Starting 2017, and due to be completed by 2020, it will impact a wide range of taxpayers, including most businesses, self-employed people and landlords, as well as individual taxpayers.
The aim of the legislation is to make taxation more effective and efficient.
Making Tax digital is revolutionary in many ways. Taxpayers will be able to:
- reduce time spent on administration
- save time by having access to all tax information in one single place
- easily and quickly see their tax position, and how much tax they owe
- get real-time insight for informed decision-making
Keep in mind, this is not the same as lodging a self-assessment tax return online. UK taxpayers have done that since 1996. MTD differs in the following ways:
- information from employers, banks, building societies and other government department will flow automatically into taxpayers’ digital accounts.
- From April 2018, businesses, including everyone who is self-employed and those letting out property, will update HMRC at least quarterly where it is their main source of income (or a secondary source of income above £10,000 and their main income is from employment or a pension).
- businesses will be required to use digital tools, such as software or apps, to keep records of their income and expenditure.
So what’s changing?
One of the biggest implication of MTD would be the end of the annual tax return. By 2020 most businesses, landlords and self-employed taxpayers will be required to manage their tax affairs online and update HMRC on at least a quarterly basis.
HMRC has confirmed that this doesn’t mean you’ll have to complete four tax returns a year. You’ll simply have to update your information online more regularly.
When is it all happening? Is there a roadmap?
MTD has a phased roll-out plan which started in 2016 and is set to complete by 2020. Key milestones* on the road include:
January – June 2017
- Testing starts for digital reporting of income from letting property
- New online billing system begins
- Taxpayers able to report additional sources of income through their digital tax account
July - December 2017
- Digital tax accounts show taxpayers an overview of their tax liabilities in one place
- Automatic tax code adjustments prevent PAYE under and overpayments
January – June 2018
- Interest paid by banks and building societies starts to be shown in digital tax accounts
July – December 2018
- Most businesses, self-employed and landlords start updating HMRC quarterly for income tax and National Insurance obligations through their accounting software
- Taxpayers who currently report their Child Benefit to HMRC no longer need to do so
- Most businesses, self-employed and landlords start updating HMRC quarterly for VAT obligations through their accounting software
- Capital Gains Tax on the disposal of residential properties needs to be paid within 30 days
- Most businesses, self-employed and landlords start updating HMRC quarterly for Corporation Tax obligations through their accounting software
- The full range of HMRC services are available through digital tax accounts
Are there any exemptions?
The smallest businesses, i.e. those with an income below £10,000, will be exempt.
What about software?
HMRC will not provide any interface or software for filing tax updates. Third party software will be a requirement and HMRC is ensuring free options will be available.
HMRC have released 2 help documents that will give you more insight into making tax digital. You can view them in your browser in pdf.
These changes are going to happen, whether you keep up or not. All businesses or individuals will need to consider:
- Costs of buying software and accounting support to comply with MTD
- If the costs for MTD reduces your taxable profits, and hence the tax you pay
- Third party software or HMRC’s basic apps and software products – it’s advisable to use more comprehensive software like Xero, FreeAgent or TaxCalc
Start getting ready
Your accountant should be happy to walk you through the process and explain how they plan to file your taxes as MTD is rolled out. More information, along with a detailed breakdown of timescales and milestones, is available from gov.uk. You can also join the discussion within AccountingWeb’s articles and forums.
Let us know what you think of MTD on @BradleysAcc