MAKING TAX DIGITAL
Understanding HMRCs new tax system
Making Tax Digital (MTD) is an HMRC initiative that will revolutionise the UK tax system and ultimately bring an end to self-assessment.
The primary aim of Making Tax Digital is to make tax administration more effective, efficient, and easier for taxpayers through the implementation of a fully digitalised tax system by 2020, whilst also reducing HMRC’s overheads for managing tax affairs.
The changes apply to a wide range of taxpayers, including most businesses, self-employed professionals, and landlords. This ‘new and improved’ tax system will require the majority of business owners to maintain digital records using compatible software.
Making Tax Digital (MTD) for VAT reporting starts from April 2019 and introduces significant new rules for how the majority of companies will submit their returns. MTD for VAT focuses on three key requirements;
Digital record keeping – storing all transactions in electronic form
Digital links – have a digital link between final numbers and source data
Digital submissions - all submissions must be made using appropriate software via HMRC’s new gateway
FREQUENTLY ASKED QUESTIONS
WHAT IS MAKING TAX DIGITAL?
Originally announced in the spring 2015 Budget, the MTD initiative will enhance the use of digital data to modernise the UK tax system by 2020, thus making HMRC the most efficient tax authority in the world.
WHAT IS A DIGITAL TAX ACCOUNT?
HMRC is replacing tax returns with digital tax accounts for millions of businesses and individuals. A digital tax account brings together each taxpayer’s details in one place, just like an online bank account. Taxpayers will be able to view their tax affairs in real time, update their information, register for new services, see at-a-glance how their tax is calculated, and choose payment options.
WHAT IS THE TIMELINE FOR MAKING TAX DIGITAL?
What is the timeline for Making Tax Digital?
This is the latest Making Tax Digital timeline, announced by HMRC on 13 July 2017:
From April 2019, quarterly reporting is:
Mandatory for VAT for all VAT-registered businesses with a turnover above the VAT registration threshold (£85,000)
Optional for VAT-registered businesses with a turnover below the VAT registration threshold (£85,000)
From April 2020 (at the earliest), quarterly reporting is:
Mandatory for income tax and corporate tax (as appropriate) for all businesses (including landlords) with a turnover over the VAT registration threshold (£85,000)
Optional for businesses (including landlords) with a turnover below the VAT registration threshold (£85,000)
IS MAKING TAX DIGITAL CANCELLED?
The simple answer is no. Making Tax Digital is more than just quarterly reporting. Quarterly reporting was an unpopular aspect of the programme that received the majority of press coverage, but MTD has many benefits to offer accountants and their clients.
As HMRC continue to digitise their tax records, Thomson Reuters customers will be able to use our software to access near-live client data to get a full view of their tax affairs.
Today, submitting a Self Assessment tax return to HMRC is a one-way process with little value beyond compliance.
In the future, MTD will enable a more holistic approach to managing a client’s tax affairs, providing awareness of business events as they happen and offering relevant advice.
WHAT DOES QUARTERLY REPORTING MEAN FOR VAT-REGISTERED BUSINESSES?
It should be noted that the vast majority of VAT-registered businesses already report quarterly for VAT today, and so, other than a technical change in April 2019 to the actual method or reporting, the data reported and frequency of report is unlikely to change for most businesses.
WHAT ABOUT ‘DIGITAL RECORD KEEPING’?
Only those businesses with an obligation to file quarterly (VAT-registered businesses with a turnover over the threshold) are obliged to keep digital records. For all other businesses, this becomes optional.
WHAT DOES THE DEFERRAL OF MAKING TAX DIGITAL MEAN FOR ACCOUNTANTS?
There has been concern that quarterly reporting would be a time-consuming struggle, particularly for smaller businesses, accountants, and their clients. Professional bodies, treasury select committees, and other organisations canvassed government to get the timeline for MTD eased, and the deferral has been widely welcomed by the accounting industry.
WILL HMRC CONTINUE TO PROVIDE A VAT SOLUTION FOR MTD?
It is unclear whether they intend to continue providing a VAT solution under MTD. For quarterly reporting of income tax, HMRC stated that they were not going to continue to provide their own software.