Making Tax Digital Proposals

Category: Making Tax DigitalTaxation - Posted On: Feb 1 2017


HMRC have embarked on a massive project, Making Tax Digital (MTD), to insist that most businesses, including sole traders and landlords, keep their accounting records using computer software with the aim that the software will automatically update HMRC with relevant data on their business income and expenses on a quarterly basis.

Based on the current proposals and draft legislation, the requirements are to be phased in so that income tax and National Insurance contributions (NICs) will be brought within the new regime from April 2018, VAT from April 2019 and corporation tax from April 2020. For some small unincorporated businesses and landlords, the start date may be delayed by 12 months and those with gross income below £10,000 may be exempted from the requirements altogether. This income threshold is still subject to further consideration by HMRC.

Instead of submitting an annual self-assessment tax return, unincorporated businesses will be required to submit regular updates (at least quarterly) of income and expenditure within one month after the end of the update period. They can choose whether or not to include reliefs, allowances and accounting adjustments at this time or wait until the year end return.

By 31 January following the end of the tax year, or within ten months of the end of the accounting period if sooner, a declaration will be required finalising the business’s profit or loss for the period and making any accounting adjustments required and claiming any reliefs and allowances not already included in the regular updates. This will establish the tax and NIC liability for the year. There will be new style penalties for failure to comply.

At this time there is no proposal to alter the tax payment dates but there will be an option to ‘pay as you go’. HMRC will use the regular updates to provide an in year estimate of the tax liability enabling business owners to manage cash flow. To enable taxpayers to budget and to highlight errors or issues more timeously is one of the main drivers for this change.

One very welcome aspect of the proposed changes is that HMRC will automatically pre-populate the Personal Tax Account (your online account with HMRC) with information they already obtain from third parties such as employers, pension providers and banks. No more hunting for that P60!

You can read the HMRC announcement summary here.

The MTD proposals will be included in legislation in the 2017 Finance Bill and the short timescale involved means we must be prepared for change. EQ are here to help you meet your reporting obligations and ensure you always pay the right amount of tax at the right time.

These proposals may seem daunting but they are also exciting and enable us to provide a better and more efficient service to our clients through the developments in technology.

One significant advantage of MTD is that we may need to communicate with our clients more regularly throughout the year where we do not do so already, giving us the opportunity to see how your business is progressing and give more timely advice within the relevant tax year.

If you have any questions on MTD and how it will impact on your business please get in touch with one of our taxation experts.