Making Tax Digital: The future of tax reporting
With the proposed start date for making tax digital [MTD] moving ever closer we look at what this is, the projected timetable and the impact for various tax payer types.
What is making tax digital?
In a bid to simplify tax reporting the HMRC is moving away from filing taxes annually. Instead, the taxpayer will be required to submit tax information, such as revenue and expenses, every three months.
As a result, taxpayers will be issued with a digital tax account where some of your tax relevant information will automatically flow into, such as bank data.
It will be the taxpayers’ responsibility to check this data every three months and provide any additional information that HMRC requires. Those who already submit quarterly VAT reports will already be familiar with this procedure.
Who and when?
The taxpayer type to be initiated onto MTD first are VAT registered businesses whose turnover is more than £85,000 with a current plan for transition to the digital regime to be commenced for period commencing on or after 1 April 2019.
Those registered for Corporation tax will not be placed onto the digital regime until at least 2020 and this will only be for those with a turnover of more than £85,000.
For individuals with trade or property income with an annual income of more than £85,000 the regime will not begin until at least 2020.
Finally, those taxpayers not mentioned above have had no start date indicated for their transfer to the digital regime.
Record keeping and submission under the new regime?
From 1 April 2019 returns must be entered using a compatible software return system and traders making such a return must pay electronically their balance.
Under new regulations the ‘electronic account’ must be preserved using functional compatible software. The information that is required in an ‘electronic account’ is:
- The name of the taxable person
- The address of the taxable person’s principal place of business
- The taxable person’s VAT registration number; and
- Any VAT accounting schemes used by the taxable person.
It is certain that VAT returns will no longer be able to be submitted by manually entering the amounts through the online account. For those who currently use this to submit their returns they will require a digital software, possibly in a simple Excel spreadsheet but this is yet to be confirmed as compatible, to create and store their records electronically and use a ‘bridging tool’ to submit these to HMRC.
Start getting ready now
One thing that seems certain is that individuals, businesses and companies will need to consider how this change will impact them and how they plan to cope.
Taking time now to consider the current available software and how they suit you in running your business and performing these new digital tasks should help better prepare you for this transitional period thus minimising any potential disruption.
Blog written by Lee WalkerTalk to Barnes Roffe today