This article covers Making Tax Digital (MTD) and where we head to in the future. What’s more, we are now already well underway with this and the digital reporting for UK business. FreeAgent is a popular online accounting choice for contractors and small business.
MTD: what does it mean for you?
MTD is a government initiative that sets out a bold vision for a digital tax system. The idea of this is to “make it easier for each individual and business to get tax right and keep on top of their affairs”. Are you not sure what it means for you? Here is what you need to know…..
What is MTD?
MTD is all about making tax admin more effective. Further to this, it is about making it more efficient and easier for taxpayers, through the implementation of a fully digital tax system.
The roll-out of the system is now well underway and MTD for VAT is now in place. This means that all VAT registered businesses in the UK with VATable sales above the VAT threshold will have to file VAT returns using MTD compliant software and store their financial records that relate to VAT on a digital basis.
We expect further announcements about MTD for Income Tax and Corporation Tax in the coming months. Please note, software providers like FreeAgent are actively in talks with HMRC to help with the implementation of MTD and simplify the shift for small businesses.
What to expect?
If your business is VAT registered, you should already have an MTD compliant software solution in place. HM Revenue & Customs (HMRC) has said that “other taxes” won’t come under the scope of MTD until at least 2021. However, every small business owner and individual taxpayer now has access to a digital account that they can use to check their records and manage their details with HMRC. As the roll-out of MTD gathers pace, you should see the future major changes to the way that you manage and report your business taxes:
Through your digital account, you will be able to see a complete full picture of your business tax affairs. You will also be able to manage all of your tax liabilities at the same time, in the same place.
HMRC will collect and process info that affects tax in as close to real-time as is possible. This should prevent any tax due or repayments owed from building up.
As a final note, you will no longer have to wait until the end of the tax year to know how much tax you have to pay.
Who does MTD apply to?
The MTD shakeup outlines the changes that will apply to a wide range of taxpayers. This includes most businesses, self-employed people and landlords, as well as individual taxpayers.
However, HMRC has confirmed that it will legislate for an exemption “for taxpayers who cannot engage digitally”. They have also confirmed that the legislation will use the existing VAT online filing exemptions.
HMRC has also confirmed that businesses with annual sales under £10,000 will not need to take part in MTD. They can though opt-in if they wish to do so.
How will the change come in?
As MTD rolls out, several changes will come in. Based on the info released by HMRC in July 2017, here is a rough timeline of the developments that are most relevant to business owners:
July – Dec 2017
Digital tax accounts show taxpayers an overview of their tax liabilities in one place.
HMRC begins a private pilot of MTD for VAT.
The live pilot of MTD for VAT begins.
MTD for VAT will come in for businesses with VATable sales above the VAT threshold. These businesses are now required to keep digital accounting records and submit quarterly tax returns for VAT purposes only.
HMRC looks to widen the scope of MTD.
A new way of reporting to HMRC
The move to a more digital tax system should come as welcome news to the many taxpayers who already choose to report much of their info to HMRC online.
The number of returns that are currently submitted online
The shift to digital should also help to iron out some of the issues that can make the current method of reporting info to HMRC frustrating for business owners. In particular, MTD promises to “modernise the tax system” and “make it more effective, more efficient and easier for customers to comply”.
The end of the tax return
One of the biggest implications for small business owners is the removal of the annual tax return.
Under MTD businesses, self-employed people and landlords will instead be able to keep track of their tax affairs digitally. Furthermore, they will also be able to update HMRC at least quarterly via third party software, or more often if they would prefer. HMRC has said that this will not involve completing a full tax return four times a year. It will simply mean that you will provide more regular updates online.
Finally, as an accountant who has looked after contractors for many years, I am very used to checking Excel spreadsheets for accuracy. With most of my clients now using digital software, it certainly does make things easier for both me and the client. As we move forward into the digital age things can only improve further.
Link to Contractor Advice UK group on