Making Tax Digital

Making Tax Digital

Making Tax Digital (MTD) is part of the government’s plan to make it easier for businesses to stay on top of their day-to-day accounts. HMRC wants to be one of the most digitally advanced tax administrations in the world – improving efficiency, effectiveness and ease of compliance. The plans signal the end of paper accounting for millions across Britain.

From April 2019, legislation will require businesses above the VAT threshold to set up a digital tax account and file quarterly returns online. Preparation starts now, with businesses and accountants moving online to improve efficiency, boost profitability and make the transition painless.

Every individual and business now have access to their own personalised digital tax account and these are being regularly expanded and improved. 

There is widespread agreement that MTD is the right approach for the future. However a number of concerns about the pace and scale of change, first presented, has resulted in the government announcing a staged rollout for Making Tax Digital for Business to ensure businesses have plenty of time to adapt to the changes.

What do I need to do?

Which software is compliant so far?

Read the full 'Software suppliers supporting Making Tax Digital for VAT' list here...

For an individual...

For non-business taxpayers, MTD is already having an effect, seen by the introduction of the Personal Tax Account, Dynamic coding (real time changes in PAYE tax codes), and the introduction of Simple Assessment. 

Personal Tax Account - read more...

Personal Tax accounts are designed for taxpayers to interact securely with HMRC, update details, and check tax affairs in real time.  All taxpayers can now create and access their own Digital Tax Account and we’ve included an information sheet which sets out the steps you need to take to open your own account. Whilst HMRC is keen to direct taxpayers to their PTA, please be aware that advisors, do not have access to your PTA. This has been a problem in the development of PTA’s and HMRC is only now taking steps to address. 

Dynamic Coding 

From July 2017, HMRC has been using ‘Dynamic Coding’ to update PAYE tax codes more frequently. Banks and building societies will, from April 2018, be required to report information to HMRC earlier and more frequently, than currently. This information will then feed into the Personal Tax Accounts and will be used by HMRC to estimate tax liabilities.

Simple Assessment - read more...

HMRC have changed the way in which they assess some taxpayers removing the need for these individuals to complete a Self Assessment Tax Return. These changes took effect from September 2017. HMRC will write to customers from September 2017 with a tax calculation. This could be a P800 or a Simple Assessment letter (PA302).

For a Business...

How does it affect my business?

HMRC’s ambition is to modernise the tax system and make it more effective, more efficient and easier for customers. The logic is widely recognised and millions of businesses are already banking, paying bills, and interacting online. Digitising routine business tasks such as record keeping is the next step and is one many businesses have already taken.

VAT registered Businesses affected first...

From April 2019, VAT registered businesses (including self-employed and landlords) with turnover above the VAT registration threshold (currently £85,000) will have to:

Keep their records digitally (for VAT purposes only)
Provide their VAT return information to HMRC through Making Tax Digital compatible software

Everybody else...

Businesses operating below the VAT threshold and businesses that are not VAT registered will also be allowed to use MTD for VAT, but will not be mandated to do so.

The Government will not widen the scope of Making Tax Digital for Business beyond VAT before the system has been shown to work well, and not before April 2020 at the earliest. 

Whatever the small print, MTD will involve fundamental changes in the way business report the records to HMRC, and it is prudent that your review the way in which your business works, to ensure a smooth transition to a digital future.