Making Tax Digital
The new timetable for the introduction of Making Tax Digital (MTD) has been confirmed with the publication of the second Finance Bill. The MTD regime was originally due to start from April 2018. However, there were significant concerns that the roll-out of the MTD was moving too fast and a new timetable for the introduction of MTD was announced earlier this summer.
The new timetable will allow more time for businesses, the self-employed and landlords to prepare for significant changes to the way they interact with HMRC in order to register, file, pay and update their information using an online tax account.
Under the new implementation plan only businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records and only for VAT purposes. These businesses will only be required to use MTD from 2019. Other businesses will not be asked to keep digital records, or to update HMRC quarterly, for other taxes until ‘at least’ 2020.
HMRC has also confirmed that the use of MTD by smaller businesses and for other taxes will be voluntary. This means that businesses and landlords with a turnover below the VAT threshold will be able to choose when to move to the new digital system.
As VAT returns are already submitted on a quarterly basis, the slow-down in the introduction of MTD means that all businesses and landlords will have at least two years to adapt to the changes before being asked to keep digital records for other taxes.
We can help by offering you advice on the changes you will need to put in place to prepare for MTD including which software would be most suitable. Any of our readers who are still using manual record keeping systems will need to examine their options for moving to keeping fully digital records.
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.