Making Tax Digital, or MTD as its commonly known, is the Government’s plan to make the UK the world’s most digitally advanced taxation system.
HMRC believes that MTD will help eliminate estimated annual tax losses of £8 billion due to avoidable tax errors.
MTD is due to be introduced in a staged process from 2018, with all affected businesses complying by 2020.
Except for unincorporated businesses and landlords with gross income below £10,000 all businesses and landlords will be required to comply with the new regular reporting requirements
Following a three-month period of consultation, we now have a better idea of how the new system will work.
Affected businesses will be reminded to submit online interim quarterly summaries of income and expenses and after the end of the year they will be required to submit online a final summary for the year.
HMRC says that although it will not be providing the software to do this, some free (as well as paid-for) packages should be available from commercial suppliers.
Once submitted, HMRC systems will then calculate the taxpayer’s projected tax and national insurance liabilities and the taxpayer will immediately be able to see how much money they should set aside for tax. According to HMRC, the big benefit of MTD for taxpayers is that they will be able to budget for tax liabilities much earlier and much more easily than currently.
The consultations raised a number of genuine concerns and as a result:
• Businesses will be able to continue to use spreadsheets to record income and expenditure which they can then link to software to automatically generate and send updates to HMRC
• There will be a bedding in period during which there HMRC will adopt a light touch for late submission penalties
• There will be an exemption for those that cannot go digital and for charities
• HMRC says it will pilot the digital systems with hundreds of thousands of businesses before rolling them out to ensure the software is user-friendly and to give businesses and landlords time to prepare and adapt.
HMRC also confirmed that the government will need to consider further issues, such as the initial exemption threshold and deferring the changes for some small businesses, with final decisions to be made before legislation is introduced later this year.
For many small businesses and indeed those that already have excellent accounting records, it’s hard to see how the extra reporting requirements and extra costs associated with MTD will bring any benefit so its important to ensure that the changes are as painless as possible.
If you would like to talk to one of Ross Brooke’s advisors about the implications for your business then we would be very happy to hear from you. Please click here for more information and our contact details.