Making Tax Digital is coming……and it will affect you !
The Background to Making Tax Digital
Increasingly, businesses see the benefits of digitisation. Millions of businesses are already banking, paying bills and interacting with their customers or suppliers online, and many are already using accounting software.
HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world and MTD is making fundamental changes to the way the tax system works – transforming tax administration so that it is:
- more effective
- more efficient
- easier for taxpayers to get their tax right
It is anticipated that the move to digital integration will eliminate many of the existing paper-based processes, allowing businesses and their agents to devote more time and attention to maximising business opportunities, encouraging growth and fostering good financial planning.
HMRC know that the majority of customers want to get their tax right but the latest tax gap figures (2016/17) show too many find this hard, with avoidable mistakes costing the Exchequer over £9 billion a year. It is hoped that the improved accuracy digital records provide, along with the help built into many software products and the fact that information is sent directly to HMRC from the digital records avoiding transposition errors, will reduce the amount of tax lost to these avoidable errors.The MTD timetable
MTD for Income Tax is available now on a voluntary basis for the smallest businesses and landlords, some of which are likely to also be eligible to take part in the private VATpilot.
HMRC are starting small and expanding the services as we test them with businesses and agents. As they expand the pilots they will invite businesses with more complex affairs to join, with additional functionality being rolled out for testing in the coming months.
The MTD timetable
|March 2018||Public MTD pilot for Income Tax launched|
|April 2018||Private MTD pilot for VAT launched|
|Later in 2018||Public VAT pilot launched|
From 1 April 2019 ALL VAT registered businesses with a taxable turnover above the VAT threshold (£85,000) are required to keep digital records and send VAT returns digitally to HMRC using MTD-compatible software
From 1 April 2020 it is highly likely that ALL other businesses and Landlords with a taxable turnover above £10,000 will be required to keep digital records and send returns digitally to HMRC using MTD-compatible software
Currently over half of businesses with turnover above the VAT threshold use software for tax purposes, but no taxes other than VAT will be mandated before 2020 at the earliest. This will ensure that there is time to test the system fully and for digital record-keeping to become more widespread amongst businesses.
Important facts about MTD
Businesses and landlords who join MTD must keep their business records digitally and send tax information to HMRC directly from those records.
From 1 April 2019 all VAT registered businesses with a taxable turnover above the VATthreshold (£85,000) are required to keep their VAT business records digitally and send their VAT returns using MTD-compatible software.
If after then, the business’s VAT taxable turnover subsequently falls below the VAT registration threshold, mandation still applies unless the business deregisters from VAT or meets one of the other exception criteria, such as insolvency.
The deadlines for sending VAT returns and making payments are not changing.
Businesses will need to use software to keep their business records digitally. This may include dedicated record-keeping software or a combination of software packages or spreadsheets.
From April 2019, software which prepares a VAT return to send to HMRC must be MTD-compatible. This means that it can integrate with HMRC systems to send VAT returns to HMRC. From April 2020, data must be exchanged digitally between all software used by a business for VAT. The information contained with the MTD VAT return will be generated by pulling information from the digital records. This information will be the 9 boxes required for the VAT return.
Businesses and landlords who join MTD for Income Tax will need to send quarterly summaries of their income and expenses to HMRC using MTD-compatible software. In response they will receive an estimated tax calculation based on the information provided to help them budget for their tax. When HMRC refer to MTD-compatible software, they mean software that can integrate with HMRC systems to send updates to HMRC.
The deadline for making Income Tax payments is not changing.
HMRC are building functionality so that businesses and landlords will eventually be able to send information about all types of income, using software, not just their business/rental income, including things like employment income, bank and building society interest, dividends, gift aid etc..The advantages of digital record keeping
Businesses, regardless of turnover, can benefit from using software to keep digital records. Software not only helps the effective running of a business but also reduces avoidable errors in business records that can occur when manual calculations are performed, or information transposed by hand.
The advantages of digital record keeping
By keeping up to date digital records in real time, businesses are less likely to lose receipts and digital records can also reduce the risk of errors due to lost or incorrectly recorded invoices.
Going digital makes managing business finances more straightforward. Millions are already banking, paying bills and interacting online – going digital with business records and taxes is the next step, giving business more control and better capability to forward plan with their finances.
By making it easier to get things right, digital record keeping will reduce the risk of unwelcome and costly HMRC compliance interventions and help businesses to manage their cash flow more effectively.
MTD is not going away !
MTD is here to stay so planning ahead early by choosing the right digital software and making the move to digital record keeping is a sensible approach.