Chancellor Philip Hammond’s March Budget was pretty much all doom and gloom although the backtracking on the self-employed National Insurance Contributions hike was a welcome relief.
One other glimmer of hope came in the shape of a delay to the introduction of the Making Tax Digital (MTD) regime which means that the self-employed, buy-to-let landlords, sole traders and small businesses that fall below the VAT threshold of £85,000 (as of 1 April 2017) will have an extra year to get ready for MTD. There is also a promise on the part of the government to consult on the design elements of tax administration in an attempt to streamline the system for taxpayers.
What is Making Tax Digital?
Making Tax Digital was brought in with the March 2015 Budget. It has a goal of transferring all tax records to a digital system. HMRC feels that putting the tax filing process into an automated system will lead to better quality record keeping which in turn should lessen the occurrence of mistakes and therefore boost revenue.
Under MTD, every person – including employed workers as well as the self-employed – will be given their own Digital Tax Account which they will be able to access online to view how much tax has been paid and how much is due. It is hoped that third parties like banks and building societies will link in with the digital account so that income can be automatically fed into it.
Also under MTD, unincorporated businesses earning more than £10,000 per year will have to submit tax information including a summary of income and expenditure on a quarterly basis. Businesses will also have to maintain digital accounting records using a system that is able to communicate with HMRC’s systems.
What MTD does not mean, and what has been widely misunderstood, is quarterly tax return filing. It is simply a summary needed four times per year. The aim for the system is that it will assist businesses in keeping on top of their tax positions throughout the year, which will help planning around finances and taxes.
What is the Timescale for Making Tax Digital?
The quarterly filing required under MTD was originally due to start from April 2018 with businesses under the VAT threshold first to start with the regime. However, this deadline has been put back to April 2019 meaning the smallest businesses have an additional year to get ready for the changes. For businesses above the VAT threshold, the deadline remains unchanged at April 2018. Furthermore, from April 2019, all VAT payments will have to be processed through MTD.
If you are concerned about MTD or digital filing, why not discuss the matter with your local bookkeepers? They’ll be able to guide you through all the necessary steps and will ensure you stay on course to meet the deadlines.