Making Tax Digital
Making Tax Digital (MTD) was initially announced in the Spring Budget 2015 as part of the government’s initiative to make it “easier for individuals and businesses to keep on top of their tax affairs”. So what are HMRC trying to achieve by this new ‘initiative’?
HMRC are looking to ensure everyone is paying the correct amount (or more!) of tax! Individuals, landlords and businesses with turnovers over £10,000 will have to start reporting income/expenditure quarterly. Many taxpayers will be well over the £10,000 ‘exemption’ so that means we can’t just ignore it.
HMRC want to make sure you pay tax in ‘real time’ (or shall we say just say sooner…) which they say will ‘prevent errors and stop tax due or repayments building up’. This makes me question whether they will eventually change the current payment deadlines to quarterly instalment payments for everyone eventually.
Everyone within MTD will be required to keep digital records and the quarterly report will require businesses to submit through HMRC’s own free software (for businesses with straightforward tax affairs) or via third party software/apps. HMRC’s software is often so temperamental it needs its own anger management classes! But more to the point, the increase in compliance and the use of third party software is going to increase costs. The Federation of Small Businesses have estimated that under MTD businesses could spend up to three times more on their tax compliance obligations as they currently do.
However, it’s not all doom and gloom, there are a number of benefits that will come from MTD. This will force companies to provide up to date information which will enable decisions to be based on real time information rather than historical data. In addition, HMRC will aim to use third party information more effectively by pre populating taxpayers’ digital “accounts” such as payroll information and bank/building society interest.
The digital tax account that everyone will have will mean that everyone will finally have all their tax information in one place and one would hope that this will also lead to a more joined up approach from HMRC i.e. changing your business address on your digital account will update across all taxes as opposed to the current disjointed system that requires you to update the address with each individual tax office (corporation tax/VAT etc.) separately! It will also mean the end of personal tax returns although there will be a digital equivalent!
MTD was due to come in from 1st April 2018 but it has now been removed from the Finance (No 2) Bill 2017 due to the General Election but this doesn’t mean it isn’t going ahead. It is widely expected to be included in the following Finance Bill following the General Election regardless of who wins. However, we won’t know until after the election if it is going to be delayed or will go ahead as scheduled.
If you would like further information please follow this link to our recent topical tax update or call a member of our tax team.
Blog written by: Jas SidhuTalk to Barnes Roffe today