Making Tax Digital
How we all manage our taxes is changing, digital tax is upon us and the time is rapidly approaching for your business to take its tax obligations online.
In the 2015 Budget the government mapped out its vision for an overhauled tax reporting system which will end the year-end tax return. It announced it would completely revolutionise the service it provides to taxpayers via a £1.3billion investment that will, in theory, transform HMRC into one of the most digitally advanced tax administrations in the world.
The government’s vision called ‘Making Tax Digital’ sets out how the future of the UK’s digital tax system will be achieved by 2020. Payment will be online, simpler and operate closer to real time.
The message is very clear – spreadsheets are out and digital tax is the way to go.
Key digital tax dates
By early 2016 five million small businesses are expected to have access to a secure, personalised digital tax account.
By 2020, most businesses, including companies, partnerships and individual taxpayers who are self-employed and those letting out property, will be required to keep track of their tax affairs digitally and submit quarterly updates to HMRC. (The government announced at Spring Budget 2017 a one year deferral from the mandating of Making Tax Digital for Business (MTDfB) for unincorporated businesses and landlords with turnovers below the VAT threshold. This means that only those businesses, self-employed people and landlords with turnovers in excess of the VAT threshold with profits chargeable to Income Tax and that pay Class 4 NICs will be required to start using the new digital service from April 2018.)
Reporting information closer to real time will, in theory, enable a business to find it easier to understand how much tax it owes thus eliminating uncertainty about submitted figures and helping it to budget accordingly.
Those who genuinely cannot get online due to their individual circumstances such as disability, geographical, or other reasons, will be exempted from these obligations.
HMRC are hoping to simplify how you manage your tax as a business in a number of ways:
- It will provide a much less cumbersome service than currently exists
Taxpayers will not have to give HMRC information that it already has, or it can obtain from elsewhere, eg. from: employers, banks, building societies and other government departments. Taxpayers will see the information that HMRC holds through their digital tax accounts, and can check at any time if details are complete and correct. HMRC will then be able to offer a bespoke service based on the information it sees.
- No more waiting until the year-end
Businesses will no longer have to wait until year- end before finding out how much tax is owed. HMRC will collect and process information affecting tax in as close to real time as possible, to help prevent tax repayments stacking up.
- Everything in one place
By 2020, taxpayers will be able to see their complete financial picture in their digital account, just as they would with their online bank account. The taxpayer will also be able to set an over-payment of one tax against the under-payment of another which should simplify and speed things up enormously. Well, that’s the theory anyway.
- Individual taxpayers
Individuals will have their own personal online account which they can log into to check their tax position. HMRC state:” A new system of online billing will mean that anyone who owes tax will be able to see a calculation and pay what they owe, without the need to complete a Self-Assessment tax return as they do now.”
- For businesses
The intention is to have (at least) quarterly reporting and collection of all taxes. Exactly how this will be implemented is yet to be clarified but those familiar with quarterly VAT reporting will have some idea how this works. HMRC state: “By 2020, most businesses, self-employed people and landlords will be required to keep track of their tax affairs digitally and update HMRC at least quarterly via their digital tax account. These changes will be introduced for some businesses from April 2018, and will be phased-in by 2020, giving businesses time to adapt.” Businesses currently report information on tax returns and pay liabilities long after the end of the tax year. The government is changing the tax system so that it operates much more closely to ‘real time’.”
In brief, the Government and HMRC hope to move individuals and businesses to a system whereby information relevant to any form of taxation is reported online at least quarterly. Tax payments will be accelerated with everyone able to log into their online account to check exactly where they stand and how much needs to be paid and when.
We already have “online banking”, soon we will have “online taxing”.
Currently, accountants and advisers acting for clients who will be brought into this brave new world, are still awaiting clarification of exactly how this will be implemented. Accounts and Tax Return software providers are currently liaising with the Government and developing the system, the Government hopes to be able to offer its own online system but we would expect this to be pitched at a very basic level.
Pulse already has the systems and software in place to cope with the changes and our software providers keep us up to date. However, it is only fair to say that there are a considerable number of matters still awaiting clarification.
So, what do you need to do now?
There is a general expectation that the implementation will be put back, one deferral has already been mentioned in the budget, but we will assume that this will not be the case.
Over the next few months Pulse will be sending you an update setting out what you and / or your business will need to consider and actions you may wish to take to ensure a smooth transition into the Digital Tax World.
As always, if you have any questions feel free to call or drop us a line.