Making Tax Digital
Making Tax Digital (MTD) is likely to be the most wide ranging change to the UK tax system since the introduction of Self Assessment many years ago and will fundamentally change the way businesses, the self-employed and landlords interact with HMRC. The introduction of MTD over the coming years will see HMRC move towards a fully digital tax system by 2020. The introduction of MTD was first announced as part of the March 2015 Budget measures.
A number of consultations were launched in the summer of 2016 and HMRC has now published its responses to the consultation documents together with draft legislation.
HMRC has confirmed that under MTD:
- Businesses will be allowed to use spreadsheets to record receipts and expenditure and then submit them electronically to HMRC. This measure was requested by a wide range of stakeholders, particularly small businesses and the Treasury Select Committee.
- Free software will be available to the majority of the smallest businesses.
- Businesses that cannot go digital will not be required to do so.
- Self-employed businesses and landlords with a turnover under £10,000 a year will not have to make quarterly updates or keep records electronically.
- The cash basis scheme for sole traders and other unincorporated businesses will be extended to allow for a simpler way of managing financial affairs.
- Charities will not have to keep their records digitally or make quarterly updates.
- There will be a 12 month initial period where HMRC will be lenient in issuing late submission penalties. A consultation on this measure will be published in the spring.
- There will be an extensive trial period beginning in April 2017 for testing the MTD reporting system before any full scale rollout.
HMRC is still reviewing a number of areas including the exemption threshold and deferring changes for some small businesses with final decisions to be announced before legislation is introduced later this year. There has been a lot of pressure on HMRC to increase the exemption threshold to a more reasonable figure such as the VAT threshold.