The government has announced a revised timetable for the introduction of Making Tax Digital (MTD). The new regime requires businesses and individuals to register, file, pay and update their information using a new online tax account.
MTD introduces extensive changes to how taxpayers record and report income to HMRC. Unincorporated businesses, including landlords, were expected to be the first to see significant changes in the recording and submission of business transactions but the government has announced a delay to the implementation of the new rules and some exceptions for smaller businesses.
The new system is set to roll out from April 2018 for those with an annual turnover exceeding the VAT threshold currently £85,000. Businesses with an annual turnover below this threshold are exempt until April 2019, while those with a turnover of £10,000 or below are exempt from the changes.
Most businesses, self-employed people and landlords will be required to use digital accounting software to keep and file tax records on a quarterly basis from next year. This will in most cases replace the current requirement to file a Self-Assessment tax return.
The introduction of MTD was first announced as part of the March 2015 Budget measures and is expected to see HMRC move towards a fully digital tax system by 2020.
However, there have been concerns that the roll-out of MTD is moving too fast. These concerns have been exacerbated by the calling of the snap general election and the removal of critical, enabling legislation from the Finance Bill 2017. It still remains to be seen if the plans for the introduction of MTD will be delayed.
The Chancellor has previously announced a one year deferral for unincorporated businesses and landlords with a turnover below the VAT threshold. For this group, the implementation date is therefore April 2019.
Under MTB businesses will be required to:
• Maintain their records digitally, through software or apps
• Report summary information to HMRC quarterly through their ‘digital tax accounts’ (DTAs)
• Submit an ‘End of Year’ statement through their DTAs
The new timetable is being introduced following concerns raised by the Treasury Select Committee, businesses and professional bodies about the implementation of the new rules and to hopefully ensure a smooth transition to a digital tax system.
Mel Stride, Financial Secretary to the Treasury and Paymaster General said in July:
‘Businesses agree that digitising the tax system is the right direction of travel. However, many have been worried about the scope and pace of reforms.
We have listened very carefully to their concerns and are making changes so that we can bring the tax system into the digital age in a way that is right for all businesses.’
The government has confirmed that under the new timetable:
- Only businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records and only for VAT purposes
- They will only need to do so from 2019
- Businesses will not be asked to keep digital records, or to update HMRC quarterly, for other taxes until at least 2020.
This means that businesses and landlords with a turnover below the VAT threshold will not have to move to the new digital system.
Ministers have also confirmed that the Finance Bill will be introduced as soon as possible after the summer recess and that all policies originally announced to start from April 2017 will be effective from that date.
The government has also confirmed that the proposed changes to VAT reporting will come into effect from April 2019. From that date, businesses trading above the VAT threshold will have to provide their VAT information to HMRC through Making Tax Digital software.
We have a close relationship with HMRC, as all our software solutions are HMRC recognised and we will be supporting our customers every step of the way to ensure a smooth transition to the new system. If you have any concerns please contact us here.