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Making Tax Digital (MTD)

Making Tax Digital (MTD) is the name for the Government’s plan to introduce a fully digital tax system. HMRC currently plans to phase in the new digital system starting in 2018 and completed by 2020.

Making Tax Digital will mean:

  • There will be no more form-filling. Taxpayers will no longer need to tell HMRC information it already knows e.g. salary details under PAYE
  • It is intended that the tax system will operate in ‘real time’ keeping everyone up to date with a taxpayer’s tax position
  • Taxpayers will have access to digital accounts with the information HMRC needs automatically uploaded, bringing an end to the tax return.

The major change for businesses and landlords is that Making Tax Digital imposes a new quarterly filing regime of accounting information. HMRC have indicated that this information will need to be filed with HMRC using accounting software. Initially HMRC said that spreadsheets would not be permissible, but have since said that spreadsheets can still be used to as long as the data can be exported into an appropriate software package in order to make the quarterly MTD filings. This means that for businesses or landlords that currently maintain their accounting records manually or on spreadsheets that they will need to implement an appropriate accounting package.

What is the timeframe for MTD?

MTD is being phased in between April 2018 and April 2020 as follows;The timeframe is a recipe for confusion. When MTD was first announced, the timetable was April 2018 for income tax; April 2019 for VAT, and April 2020 for corporation tax. That changed in the 2017 Spring Budget when the Government had announced that MTD would be deferred for one year – i.e. to 1 April 2019 – for unincorporated businesses with a turnover below the VAT threshold (£85,000 from 1 April 2017).

But forget all that as significant changes have been made to the timetable. The current plan, as announced in July 2017, is for businesses with a turnover above the VAT threshold (currently £85,000) to be brought within MTD from April 2019 for VAT, and from April 2020 for other taxes. For smaller businesses (i.e. businesses with turnover below the VAT threshold), MTD is voluntary.

Any business or landlord with annual gross income below £10,000 will be exempt from the new obligations.

Where are we now with MTD?

The legislation providing for MTD will be included in a Finance Bill to be introduced in Parliament after the summer recess. It is likely that this legislation will be an updated version of legislation included in the 2017 Finance Bill published in March 2017. The March 2017 legislation did not make it into the Finance Act 2017 due to the tight timetable in Parliament in the run up to the General Election. The March 2017 legislation was published following a consultation process that began in August 2016 with the publication of six consultation documents.

The consultation documents published so far have mainly been of interest to unincorporated businesses. A promised consultation document dealing with companies has yet to be published.

What will a business have to do?

The main obligation on the business will be to keep digital records and to send digital periodic (e.g. quarterly) updates to HMRC. The single most important thing that businesses therefore need to consider is how they will do that. For those that already maintain their financial records on a software package such as Sage or Xero are already on their way to being ready, as the software houses have said they will be MTD compliant.

For those businesses that are still maintaining manual records or spreadsheets they will need to transition to an MTD compliant book-keeping package, and it would be wise to make steps with that sooner rather than later. If you require advice, or a demonstration of a software package suitable for your business, then do not hesitate to contact us.

There is still a lot which is unknown about Making Tax Digital but we will be providing lots of information to keep you up to date as it unfolds. If you would be interested in being included in these communications and other Taxing Times questions, simply email info@kirkrice.co.uk stating Taxing Times in the subject heading and we will add you to our distribution list.

For further information now, click here to read the Government Overview on ‘Making Tax Digital’




Any reader interested in discussing this topic further can telephone Graham Jennings at the Ascot Office on 01344 875000, or James Moody at the Putney Office on 020 8789 8588 or email info@kirkrice.co.uk