Making tax digital - a tax revolution?

What is it?

This has been described as the biggest change to business administration since the introduction of VAT in 1973. HMRC has issued consultation documents which will abolish the annual routine of completing a Self Assessment Tax Return. Instead information will be submitted to a Personal Tax Account throughout the year.

What is a Personal Tax Account?

This is an online account where information both from the individual and third parties will be deposited. This will mean that HMRC will no longer ask for information to be entered onto a tax return, e.g. P60 or P11D details from an employee or state pension figures, which is already in their possession. This idea is inherently sensible and over one million people have already registered and set one up. However, what is causing some concern is how and when information about business profits or rental income is reported to HMRC.

Who will it affect?

In short, everybody who currently completes a self assessment tax return.

How will it work?

Instead of completing a Tax Return on an annual basis, individuals will have to submit details of business income and rental income on a quarterly basis and then “confirm” the figures after the end of the year. The deadline for quarterly submissions is within one month, and for the annual submission has to be made within nine months of the year end.

When is it being introduced?

In less than 18 months for some taxpayers but it will be phased:

  • Large businesses and landlords will be within the new system from April 2018 and their first quarterly returns will be due in July 2018
  • Medium sized businesses will be given an extra year and will join in 2019. HMRC have yet to announce the criteria to determine which businesses will fall into this category
  • Small businesses and landlords with turnover of less than £10,000 will be exempt from quarterly reporting
What else is HMRC consulting on?

Numerous documents were issued over the summer, included the following:

  • Simplifying accounts - this document suggested greater use of the cash basis and simplifying some accounting rules. At first glance these might be thought to be positive, but may result in more volatile tax bills
  • A reform of the penalty system - One possibility is to move to a points system so that there would be no penalty for a single oversight
  • “Voluntary pay as you go” - this would allow taxpayers to spread their tax liabilities by making early payment of part of the bill
What is Armstrong Watson doing?

We have scrutinised the documents in detail and will be taking part in the consultation process by attending meetings and putting in a written response.

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