Making Tax Digital in 10: All you need to know

Man using tablet
Philip McNeil By Philip McNeill, ICAS

2 November 2016

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

  1. Brings in mandatory digital records for business and landlords, with quarterly tax submissions to HMRC.  New businesses will have to make a first return within four months of start-up.
  2. One month will be allowed to make each quarterly update; for smallest business this may be just a three-line account: but it will have to made directly from the accounting software via a digital tax account.
  3. 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.
  4. Digital records most likely mean ‘intelligent’ digital accounting software; with the potential for scanned invoices; smart phone apps; may be stand-alone or cloud.
  5. Push towards cash accounting for SME businesses, with the cash accounting threshold potentially doubled (which could bring an exit level at four times the VAT threshold).
  6. New cash accounting for landlords – for unincorporated property business: with no turnover limit.  New rules for capital/revenue divide, interest restrictions and no sideways loss relief.
  7. Third party income data from banks, employers, and potentially DWP, sucked into digital tax accounts: discrepancies would need to be challenged with the third party.
  8. Timeline: unincorporated landlords and the self-employed with £10,000 or more gross income – start in April 2018; VAT moves onto the new system April 2019; companies by 2020.  Possible 12 month deferral for some SME businesses (threshold to be agreed).
  9. Voluntary pay as you go option – based on forecast tax liability in digital tax account.
  10. New points based penalty system for all late returns across Income Tax, VAT and Corporation Tax.

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


  • Tax

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