The machinery of the UK tax system is going to change. Although there will be no change in the underlying substantive law governing the amount of tax due, the government’s Making Tax Digital (MTD) initiative is aiming to make tax administration very different for HM Revenue & Customs (HMRC) and taxpayers alike.
Recent revisions to the government’s MTD timetable mean that it will be introduced more gradually than originally planned.
When do I have to start using it?
MTD will eventually affect all businesses, self-employed people and landlords, with the exception of:
- Those with annual turnover of less than £10,000
- Charities and community amateur sports clubs
Under the government’s recently revised timetable:
- Only VAT registered businesses with an annual turnover above £85,000 (the VAT threshold) will be required to use the Making Tax Digital for Business system to meet their VAT obligations – and this won’t apply until April 2019
- Aside from VAT, businesses won’t be asked to keep digital records, or to update HMRC quarterly, until April 2020 at the earliest
The government has reconfirmed that these changes will be legislated for as part of the 2017 Finance Bill, which will be introduced as soon as possible after the summer recess.
How will it affect me?
Using a secure ‘digital tax account’, you will be able to see your tax affairs and calculations online, access and update your details and view payment options.
If you’re an employee, you are likely to be largely unaffected: you will still pay tax under PAYE. HMRC’s expectation is that, if anything, the introduction of MTD will result in a reduction in the number of employees who are required to file tax returns.
It is businesses and landlords that will see greater changes. You will be required to use MTD-compatible software to submit records and to send quarterly updates electronically to HMRC. For businesses with ‘straightforward tax affairs’, HMRC promises that free MTD software will be made available.
Should I worry?
MTD is part of what HMRC calls its ‘bold vision for the future’. We are fully expecting to see short term disruption before that future arrives. And even if MTD does help to simplify and modernise the administration of the UK tax system in the long term, tax law itself is likely to remain complex.
One thing is clear about MTD: early preparation will make it easier to adapt to the new system. The government’s delayed timetable will be a welcome relief to many businesses. But we still recommend allowing plenty of time for your business to prepare.
As accountants and experts in tax, we can help you get ready for MTD. Our involvement with HMRC’s MTD Pilot means that we’ll be able to input into the process and get early insights, which we can pass on to you.
As more details become available from HMRC, we will keep you updated via our website and mailings and provide clear guidance that will enable you to comply with the new system. We will help you understand what information you need to record, how to record it and when to report it.
If you’d like to discuss Making Tax Digital and your situation at any time, please get in touch with your usual contact partner or use our enquiry form.