Making Tax Digital is a government initiative that sets out a bold vision for ‘a transformed tax system and the end of the tax return’ by 2020. Not sure what it means for you? Here’s what you need to know:
What is Making Tax Digital?
Making Tax Digital is all about making tax administration more effective, more efficient and easier for taxpayers, through the implementation of a fully digital tax system. The roll-out of the initiative has already begun. Every small business owner and individual taxpayer now has access to a digital account that they can use to check their records and manage their details with HMRC1. Further changes are planned in the coming months. A Making Tax Digital pilot scheme is scheduled to begin in April 2017, with a phased rollout to unincorporated business
es starting in April 2018 and full implementation of the initiative expected by 2020. Businesses with a turnover between the minimum threshold of £10,000 and the VAT threshold will be given until April 2019 to comply. By this time you should see the following major changes to the way you manage and report your business taxes:
• Through your digital account you’ll be presented with a complete picture of your business’s tax affairs and you’ll be able to manage all of your liabilities at the same time, in the same place.
• HMRC will collect and process information affecting tax in as close to real time as possible. This should prevent any tax due or repayments owed from building up.
• You’ll no longer have to wait until the end of the tax year to know how much tax you have to pay.
Who does Making Tax Digital apply to?
The changes outlined in the Making Tax Digital initiative will apply to a wide range of taxpayers, including most businesses, self-employed people and landlords, as well as individual taxpayers. However, HMRC has confirmed that it will legislate for an exemption “for taxpayers who cannot engage digitally” and that the legislation will be based upon the existing VAT online filing exemptions. HMRC has also confirmed that there will be a minimum threshold of £10,000 annual sales at which MTD will kick in2
How will the initiative be implemented?
As Making Tax Digital is rolled out, a number of changes will be implemented. Here’s a timescale3 of the developments that are most relevant to business owners:
Jul – Dec 2017 Digital tax accounts show taxpayers an overview of their tax liabilities in one place.
Jul – Dec 2018 Businesses, self-employed people and landlords with turnover above the VAT threshold start updating HMRC quarterly for Income Tax and National Insurance obligations through accounting software.
2019 Businesses with a turnover between the minimum threshold and the VAT threshold start updating HMRC quarterly for Income Tax and National Insurance obligations through their accounting software. MTD starts for VAT figures and returns.
2020 Most businesses, self-employed people and landlords start updating HMRC quarterly for Corporation Tax obligations through their accounting software.
1. More information is available at http://www.gov.uk/personal-tax-account
2. ‘Making Tax Digital – Bringing business tax into the digital age’, HM Revenue and Customs – Summary of responses (accessed 10 March 2017)
3. Timeline adapted from ‘Making Tax Digital – roadmap’, HM Revenue and Customs, 2015 (accessed 10 March 2017).
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