Making Tax Digital – What’s Changed?

Posted 2017 by Chris Davies

If you are in business you may not be aware, but from 2019 many businesses, the self-employed and landlords will need to use specialist software or apps to record and categorise receipts and expenses and to update HMRC quarterly with their figures.

Making Tax Digital, or MTD as its commonly known, is the Government’s plan to make the UK the world’s most digitally advanced taxation system.

HMRC believe that MTD will help eliminate estimated annual tax losses of £8 billion due to avoidable tax errors.

Following a number of Political issues including the snap election and Brexit, the initial MTD proposals have been altered considerably including a delay in the start date to 2019, with all affected businesses now complying by 2020.

In the revised plan, from April 2019 all VAT registered businesses with income above the VAT threshold (currently £85,000) will be required to submit their VAT returns in a digital format.

From April 2020 all businesses and landlords with income levels above the VAT threshold will be required to submit details of their income and expenses in digital format to HMRC.

In a change to earlier plans HMRC now say that they have no plans to require businesses and landlords with incomes below the VAT threshold to make quarterly returns.

Affected businesses will be reminded to submit online interim quarterly summaries of income and expenses and after the end of the year they will be required to submit online a final summary for the year.

HMRC say that although they will not be providing the software to do this, some free as well as paid for packages should be available from commercial suppliers.

Once submitted HMRC systems will then calculate the taxpayer’s projected tax and national insurance liabilities and the taxpayer will immediately be able to see how much money they should set aside for tax. According to HMRC the big benefit of MTD for taxpayers is that they will be able to budget for tax liabilities much earlier and much more easily than they can currently.

HMRC have earlier conceded that:

  • Businesses will be able to continue to use spreadsheets to record income and expenditure which they can then link to software to automatically generate and send updates to HMRC
  • There will be a bedding in period during which there HMRC will adopt a light touch for late submission penalties
  • There will be an exemption for those that cannot go digital and for charities
  • HMRC say they will pilot the digital systems with hundreds of thousands of businesses before rolling them out to ensure the software is user friendly, and to give businesses and landlords time to prepare and adapt.

For many small businesses and indeed those that already have excellent accounting records, it’s hard to see how the extra reporting requirements and extra costs associated with MTD will bring any benefit so its important to ensure that the changes are as painless as possible.

We have already been planning for the impact of the MTD changes on our clients and if you would like to talk to one of our advisors about the implications for your business then we would be very happy to hear from you.