What is Making Tax Digital?
UPDATED with latest decisions from Spring Budget 2017
Making Tax Digital is the Government’s programme to move all personal and business tax online. Starting in 2017, and due to complete in 2020, all of us will be affected by Making Tax Digital (MTD).
The Making Tax Digital for Business timetable for all businesses trading over £10,000 is:
- April 2018 if they have profits chargeable to Income Tax and pay Class 4 National Insurance contributions (NICs), and their turnover is above the VAT registration threshold (£85,000 from 1st April 2017).
- April 2019 if they are registered for and pay VAT; or have profits chargeable to Income Tax and pay Class 4 National Insurance contribution with turnover below the VAT threshold.
- April 2020 if they pay Corporation Tax (CT)
Who will MTD affect?
The MTD for business programme affects everyone with a turnover of more than £10,000 per year. There is a phased approach with the self-employed and landlords being the first group required to use MTD from April 2018.
By April 2020, all businesses over the £10,000/year threshold will need to be using MTD.
For individuals and businesses, there’s a range of exceptions in place for those with disabilities and genuine difficulty getting online. Charities have been completely exempted from the scheme, but any trading companies they operate still are required to comply.
Will I have to do four tax returns each year?
No. Businesses will be required to submit an update once per quarter, followed by an annual submission. The updates will be very simple and, in most cases, will be done automatically by your accounting software.
Thanks to the updates and the greater information integration planned by HMRC, the annual submission should be quicker and simpler than the existing self assessment.
Will I need to purchase software?
You will need to use software (Xero is an example) to submit your quarterly returns, but whether you need to pay for it will depend on the size and nature of your business.
HMRC and the business software industry have agreed that there will be provision of free software packages to serve smaller and simpler businesses.
What if I can’t file digitally?
Extensive provision and support has been planned by HMRC for those who cannot file digitally. The provisions are similar what’s already provided for those unable to use existing HMRC online services.
For example, you may be able to nominate someone to submit the information for you or may be allowed to submit information by phone.
Will I need to keep extra records?
No additional records are needed. The requirement is simply to keep your records digitally using a method that is compatible with the MTD programme.
HMRC will publish a list of providers who offer compatible services.
What are the key benefits?
- The tax system will be simpler, faster, and more accurate.
- Those who combine PAYE employed roles with freelancing should see more accurate tax codes on their payslips.
- Everyone using MTD will be able to see live tax calculations from HMRC.
- A single online tax account with HMRC will help to save time and enable better budgeting.