Making Tax Digital – are you ready for the biggest change to business administration since VAT?

In the Budget in March 2015, the then Chancellor George Osborne announced that the annual Self Assessment Tax Return was going to be abolished, and individuals and businesses were being brought into the digital age with ’Making Tax Digital’. This has been described as the biggest change to business administration since the introduction of VAT in 1973. Instead of completing an annual Self Assessment Tax Return, information will be submitted to H M Revenue and Customs (HMRC) via a ‘Personal Tax Account’ throughout the year.

The Government’s main driving force behind this is to help businesses get their tax and national insurance correct first time. HMRC’s recent figures indicate that they are losing out on £8 billion in tax per annum due to avoidable taxpayer errors, and they believe that in order to correct this, there needs to be a change in the way that people submit financial information to them.

As a result of this, every individual and business now has access to their own ‘Personal Tax Account’. This is an online account where information from both the individual and third parties will be deposited. This means that HMRC will no longer need to ask a taxpayer to enter information such as a P60, P11D, State Pension or employee pension onto their Tax Return, as HMRC already have this information in their possession.

For self employed taxpayers and landlords, rather than completing a Tax Return on an annual basis, they will have to digitally submit details of their business income and rental income on a quarterly basis, and then “confirm” the figures after the end of the year.  These quarterly submissions need to be made within one month. The deadline for the annual submission is ten months from the accounting year end.

Originally, the Government had planned for Making Tax Digital to start in April 2018 for all self employed individuals/landlords. However, in his recent Budget, the now Chancellor, Philip Hammond, altered the timetable for the start of Making Tax Digital as follows:

  • April 2018 for businesses and landlords who have a turnover above the VAT registration threshold (which is £83,000 from April 2017)
  • April 2019 for businesses and landlords who have a turnover blow the VAT registration threshold and for businesses that are registered for and pay VAT
  • April 2020 for businesses who pay Corporation Tax

Businesses, self employed individuals and landlords who have turnovers of under £10,000 are exempt from these requirements at present, as are the ‘digitally excluded’, who are defined as those who cannot engage with accounting software or apps for reasons of religion, disability, age or remoteness of location.

Whilst smaller businesses have had their start date for moving to Making Tax Digital extended to April 2019, all businesses do need to start planning now (if they haven’t already started doing so), so that their accounting software systems are ready. Having a computerised accounting system is not compulsory, but will make complying with the new regime a lot easier.

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