Making Tax Digital in 10: All you need to know

Man using tablet
Philip McNeil By Philip McNeill, ICAS

26 July 2017

How the biggest change in tax for twenty years will impact your practice and business:

On 13 July 2017, the Treasury announced a rethink to the published timetable for introduction of MTD for Business. In the new timeframe:

  • MTD for VAT comes in first – from April 2019.
  • For businesses under the mandatory registration threshold, joining MTD is voluntary until at least 2020, though they may opt in before then.
  • Other businesses will not be asked to keep digital records, or to update HMRC quarterly for taxes other than VAT until at least 2020.

What it is all about

MTD for VAT business is about digital record keeping, and making quarterly tax submissions to HMRC direct from business accounting software. MTD for individuals means more real-time interaction with HMRC, ‘dynamic’ PAYE coding, and more extensive use of third party data.

  1. Timeline: VAT moves onto the new system in April 2019 for businesses over the VAT registration threshold; other taxes will follow but not before 2020. (See below for the original MTD timeframe).
  2. MTD brings in mandatory digital records for business and landlords, with quarterly tax submissions to HMRC.
  3. Digital records mean ‘intelligent’ digital accounting software; with the potential for scanned invoices; smart phone apps; and may be stand-alone or cloud. Spreadsheets permitted if linked to MTD submission software.
  4. Push towards cash accounting for SME businesses, with the cash accounting threshold at £150,000 entry and £300,000 exit levels from April 2017. New cash accounting for unincorporated property business up to £150,000 gross income, becomes the default from April 2017. New rules for capital/revenue divide.
  5. For individuals, wider use of third party income data - from banks, employers, and potentially DWP, sucked into Personal Tax Account: discrepancies would need to be challenged with the third party. HMRC’s Simple Assessment powers potentially replacing self-assessment for some taxpayers. Real-time PAYE coding changes aimed at reducing in-year under and over payments.
  6. New points based penalty system proposed for all late returns across Income Tax, VAT and Corporation Tax.
  7. Agent access will be through practice software: so, make sure you know what your software supplier is providing and when.
  8. MTD for business means one month will be allowed to make each quarterly update; for smallest business, this is a three-line account. Updates made directly from the accounting software to a digital tax account.
  9. Nine months permitted for year-end finalisation – the ‘quarter five’. In the consultations, HMRC envisages taxpayers submitting their own quarterly updates and agents making the final year-end update – the fifth return. New businesses will have to make a first return within four months of start-up.
  10. Voluntary pay as you go option – based on forecast tax liability in digital tax account.

Original timeframe

Under the original timeline, unincorporated landlords and the self-employed with turnover above the VAT threshold were due to join MTD in April 2018; with VAT moving onto the new system in April 2019, along with unincorporated businesses and landlords with turnover between £10,000 and the VAT threshold; companies were due to follow suit by 2020.

ICAS commentary and other resources

HMRC consultations

ICAS responses

Individual consultations

  1. Bringing business tax into the digital age
  2. Simplifying tax for unincorporated businesses
  3. Simplified cash basis for unincorporated property businesses
  4. Voluntary pay as you go
  5. Tax Administration
  6. Transforming the tax system through the better use of information

Topics

  • Tax

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