Making Tax Digital: What it means for you

Making Tax Digital (MTD)

You should have already heard that the UK’s income tax system as we have known it for many many years is about to change. April 2018 will bring the changes from paper formatted records into digital format. Below we have answered some questions on what Making Tax Digital means for you.

What is Making Tax Digital?

It is a tax initiative created by HMRC to align all internal tax systems. It will help both individuals and businesses to have all their tax affairs in one place, as each taxpayer will have one account whereby they report all their different taxes.

Why now?

The Office for National Statistics reported that in 2016 82% of all adults use the internet daily, with 70% accessing via a mobile phone. Therefore, moving the tax system into a digital format has been a long time coming and will hopefully make submitting records a lot easier and thus leaving more time to other important matters.

How will Making Tax Digital affect me?

If you own your own business, are self-employed or a landlord, you will be required to keep your records in a digital format, and also send HMRC an electronic quarterly update, and possibly quarterly payment obligations.

When are the changes being introduced?

MTD is being staged in over the next 3 years, below is a breakdown of when you could be staging:

April 2017 – Initial MTD testing – HMRC are testing the system with a few selected businesses

April 2018 – Non-incorporated business and landlords over the £85,000 VAT threshold

April 2019 – Business with turnover between £10,000 and £85,000, and landlords with receipts exceeding £10,000

April 2020 – Limited companies

For example…

If you are a limited company with a financial year end of August, you will start your digital reporting from August 2020.

How will it work?

If you are a limited company with a financial year end of August, you will start your digital reporting from August 2020.

It will require quarterly filing from businesses and landlords onto a digital system, thus invalidating the need for annual tax returns. However, year-end accounts are still necessary to reconcile quarterly payments and claim relief, if need be. A year-end declaration will be required rather than self-assessments and corporation tax returns, the main differences will be that HMRC are able to pre-populate return figures such as employment income.

Are there any exceptions to MTD?

HMRC have confirmed a few exemptions such as people with disabilities who aren’t able to use a computer, or if you have a seasonal business. However, each exemption is assessed on a case by case basis.

If you have any further questions surrounding Making Tax Digital, contact us for expert advice: