May2016BackgroundBlog

1st August 2017

Making Tax Digital

One of the biggest changes to affect the way tax is administered is expected to start to take effect over the next couple of years, with the Government announcing their plans for “Making Tax Digital” (MTD). Although we expect that the changes are coming, at present we are unsure of when. When it was first mentioned, in the 2015 Budget, the plan was that it would introduced from 6th April 2017, however various events since the original announcement have delayed it’s proposed implementation until 6th April 2019, with potential for further changes going forward. The goalposts, it seems, are constantly changing.

“Making Tax Digital” involves the creation of a digital tax account for every UK registered taxpayer and business, with the ability by HMRC to “pre populate” these accounts with tax information where it can do so. Therefore, for those who are employed, HMRC is already aware, through payroll submissions, of a person’s earnings and taxable benefits in a tax year, the same applies to State and private pension information and bank interest received. These are currently held on separate systems and HMRC’s aim is to “join up” these internal systems so that we do not have to report back to them information which they are aware of already.

While the above is more straightforward information to obtain and collate automatically, the position with businesses, self -employed people and landlords is more complex.

The latest proposal involves them being brought into the Digital Tax system from April 2019. Originally, this was to be mandatory for all businesses with a turnover of over 10,000, but in July 2017 this was changed so that only businesses with a turnover in excess of the vat threshold (currently 85,000) would be affected.

Smaller businesses are able to use the system if they choose, but on a voluntary basis only, they have the option to continue with the current system of a single Tax Return a year, as now.

However, this is only expected to be a fairly temporary transition arrangement, with all businesses expected to be using the new system in the not too distant future, once the new arrangements have “bedded in” with VAT registered entities.

So, if you are required to use the new system, or choose voluntarily to do so, what does this mean in practical terms?

The plan at present will require businesses to keep records in a digital format, which must link with HMRC’s software. This may include some sort of spreadsheet based software, however the requirement that it must be able to talk to HMRC’s own software electronically may mean that this would need to be via some type of MTD compliant app. HMRC have already stated that they will not be providing any free software product, so this would have to be paid for by the taxpayer, or the cost borne by the accounting software providers.

It is widely expected that submissions to HMRC for a sole trader business will involve five or six tax returns a year, with a quarterly update, followed by an end of year business summary and potentially a final tax return (as now) which combines the business trading figures with the owners other income to bring everything together.

The way tax is paid will remain as now, with payments nine months and one day after the year end for Corporation Tax, with January and July for income tax payments on account –although there are some people who suspect this may be the first step in a move towards quarterly tax payments in the not too distant future.

If you would like to discuss this, please contact either Teresa or Michael at CCF on 01423 567499

Read our other Blogs

Making Tax Digital

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2017 Spring Budget

2016 Autumn Statement

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2016 Budget summary

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July 2015 Budget

2015 Budget summary

7 Financial Habits

Charity Donations

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