You may have heard reports about the HMRC initiative called Making Tax Digital. The changes will affect a wide range of taxpayers including most businesses, self-employed people, landlords and individual taxpayers. If you fall into one of those categories, read on to find out what it is all about and how it will affect you.
What is Making Tax Digital?
Making Tax Digital is about making tax administration more effective, more efficient and easier for taxpayers through the implementation of a fully digital tax system.
Instead of submitting just one tax return at the end of year, you will now need to submit updates every quarter. But don’t panic; you won’t need to submit a full return each time. The idea is to make life easier for you so you won’t need to provide HMRC with information it already has or is able to get from elsewhere – e.g. from banks, building societies or employers.
Making Tax Digital should be fully implemented by 2020. One of the major changes that has already happened is that every small business owner and individual tax payer already has access to a digital account that they can use to check their records and manage their details with HMRC – this is called the “personal tax account”. More information is available at www.gov.uk/personal-tax-account.
There have been some recent changes to the roadmap for Making Tax Digital, which means only businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records and only for VAT purposes. They will need to start filing with compatible software from April 2019.
Small businesses below the threshold will be able to choose when to move to the new digital system.
|Business annual turnover||Quartely reporting for taxes||Old timetable||New timetable|
|VAT only||1 April 2019||1 April 2019|
|Over £85,000 –
all businesses and landlords
|Income tax and national insurance||6 April 2018||At least April 2020|
|£10,000 to £85,000||Income tax and national insurance||6 April 2019||At least April 2020 but on a voluntary basis|
|All companies||Corporation tax||1 April 2020||At least April 2020|
Benefits of Making Tax Digital
Making Tax Digital is all about simplifying the tax system. Your account will give you a comprehensive financial picture of your liabilities and entitlements. This means you will be able to:
- Have a full picture of your tax affairs throughout the year
- Manage all your liabilities at the same time, in the same place
- Know how much tax you will have to pay at any given point, rather than waiting until the end of the tax year.
- Budget and plan more effectively.
How to provide updates to HMRC
HMRC will need to be updated at least quarterly via your digital tax accounts. Ideally, accounting software will need to be used, but HMRC are also working on a template for tax payers who use spreadsheets so that it will still be possible to upload the relevant information without having to invest in accounting software.
One of the downsides is the time and effort involved in ensuring accounting records are kept up-to-date rather than leaving it all until year end. Remember though, that HMRC will be pulling information from other sources, so it shouldn’t be too onerous and we are happy to advise you on how best to be efficient as possible.
The good news is that businesses and landlords will have at least two years to adapt to the changes before being asked to keep digital records for taxes.
If you would like more information on how we can help you meet your obligations for Making Tax Digital and quarterly reporting to HMRC, please get in touch.