What is Making Tax Digital?
April next year will see the biggest change to tax since self assessment. Making Tax Digital brings compulsory online tax accounts and quarterly submission of accounts and tax returns.
Digital accounts will track professional and business transactions automatically. The biggest change is the need for quarterly, rather than annual, submissions to HMRC.
Why are these changes needed? Making Tax Digital aims to help taxpayers budget for their liabilities.
When Does Making Tax Digital Go Live?
The changes will be introduced from April 2018
Who Does Making Tax Digital Affect?
The Chancellor confirmed in the recent Spring Budget, that Making Tax Digital will be implemented with the following criteria:
- Self employed, partnerships and landlords with annual turnovers of less than £10,000 are exempt from these requirements
- Self employed, partnerships and landlords with turnover above the annual VAT threshold of £85,000 are required to report from April 2018
- Self employed, partnerships and landlords with turnover less than the annual VAT threshold of £85,000 are required to report from April 2019
- Companies are required to report from April 2020
Will Tax Payment Dates Change?
Under the new Making Tax Digital proposals paying tax on a quarterly basis is voluntary, but many experts are concerned that at some time in the future this may become mandatory.
Why is Making Tax Digital being introduced?
The government states four advantages of MTD:
1. Simplified tax – avoiding duplicate submission of HMRC information and enabling easy viewing and updating of information held by HMRC
2. Faster understanding of tax owed – instead of waiting until the end of the tax year – or longer – before knowing how much tax is owed, quarterly updates will be available.
3. Online access to a personalised picture of tax affairs – as every individual and small business will have access to a digital tax account.
4. A single view – taxpayers will be able to see their complete financial picture via their digital account, including liabilities and entitlements.
How does our current system compare with MTD?
The biggest change is having to prepare four set of accounts per year (quarterly). Returns will need to be submitted within one month of the quarter end and need to include income from self employment, partnerships and rents. There will be penalties for late returns, although there is a possibility of a “soft landing period” of 12 months where late penalties are not charged.
Three actions to take NOW:
1. Make sure your accounting system will be able to meet the new requirements. If you are uncertain speak to us, we will be able to suggest ways to prepare yourself ahead of time so that when the changes are in place you will be ready to go.
2. Think about cloud bookkeeping/accounting, selecting the right package that will support MTD. The transition will be much easier if records are on a cloud platform accessible to both client and accountant. (Look out for information and updates from software companies over the coming months as they develop their MTD software.)
3. Stay fully informed – by signing up to our newsletter and keeping an eye on our blog. We will guide you through the changes with regular updates, including jargon-free explanations of the details issued by HMRC. Plus – you are welcome to contact us if you have any queries.
Would you like to know more about how Making Tax Digital affects you?