24 Mar Making tax digital and what it means to you?
A radical reform of the tax systems will spell the end of the annual tax return by 2020.
In the 2015 budget, the government announced their vision to transform the tax system. A £1.3bn investment will transform the tax system – making it more effective, more efficient and easier for taxpayers to use.
Many of the details of how Making Tax Digital (MTD) will actually work have yet to be finalised. HMRC released a set of consultations covering businesses, self-employed, individual taxpayers, pensioners and landlords; which
So what does Making Tax Digital mean for you?
Every individual and business should already have access to their own secure digital tax account allowing them to interact with HMRC online.
By 2020 most businesses, self-employed people and landlords will need to keep digital tax records. These reforms will not apply to unincorporated businesses and landlords with an annual income of below £10,000 and the small minority of businesses who can’t use digital tools will also be exempt.
In September, the government postponed the introduction of MTD until 2019 for the smallest unincorporated businesses that fall into scope of the changes to give them more time to prepare.
Benefits of MTD
When the new tax system has been fully implemented, you’ll:
- Be able to access your tax records in one digital account. Giving you a clear view of all your liabilities and entitlements in one place. You will also be able to offset overpayments of one tax against underpayment of others. Saving you time and effort.
- Benefit from having unnecessary time delays eliminated. HMRC will collect and process information affecting your tax in as close to real time as possible. This should remove the risk of missed deadlines, unnecessary penalties, debts arising and systems errors being carried forward into another tax year. The real time collection of data will allow you to plan and budget more effectively as you will no longer have to wait until the end of the tax year to find out how much tax you have to pay.
- Have access to your digital tax account whenever you like 24/7, 365 days a year.
End of year tax return
HMRC wants tax compliance to be part of a businesses daily activity rather than something that is carried out at the end of the tax year. They will require digital records to be held and reported on at least quarterly. There has been some discussion that this may mean filing a full tax return at least four times a year. However, HMRC has confirmed that the new digital account will integrate all the information businesses already provide to HMRC in one place. So rather than one large yearly tax return, HMRC says once a quarter a business will just need to check that the information HMRC is collecting is correct and send a simple update to confirm this to HMRC.
As we learn more about the details of Making Tax Digital and how it will work in practice, we will keep you updated.
If Making Tax Digital applies to you, you’ll have to start using digital software or an app to keep records of your income and expenditure. So why wait until the deadline day? You can start managing your records electronically now. At EA Assist we can recommend a number of cloud accounting software applications which are simple to use.
If you’d like any further information on Making Tax Digital or the current software packages available, please call us on 01379 646943 or visit our EA Assist website.