In December 2018, the government published the Making Tax Digital (MTD) roadmap. This set out plans to make fundamental changes to the UK’s tax compliance system.
MTD would mean businesses, landlords and individuals would record and report income and expenses to HMRC digitally, and more frequently, rather than simply filing one return. The initial plans to transform the tax system from 2020 onwards included:
- Taxpayers would need to use compatible software to file returns quarterly
- A further final submission would need to be filed to complete the year
- A minimum of five submissions would be required annually
MTD was delayed for individuals while the UK made preparations to leave the EU. However, the reporting changes went ahead for VAT registered businesses filing VAT returns, with a turnover above £85,000, from April 2019. Traders who were VAT registered, but their turnover was below the threshold of £85,000, could voluntarily join the MTD scheme.
Since the programme was launched last year more than 1.4m businesses have signed up. The scheme is designed to make it easier for individuals and businesses to pay tax. This could help reduce fraud and avoidable errors – which cost the exchequer £8.5bn in 2018-19. The government also says it could help boost productivity.
New key dates
On 21 July 2020, the Treasury set out key dates to continue with the digitisation of the tax system and a timetable for further implementation of MTD. This included:
- All VAT registered traders, regardless of their turnover, will need to follow MTD rules for their first return starting on or after April 2022
- Self-employed individuals and landlords with turnover above £10,000 will need to follow MTD rules for their next accounting period starting on or after 6 April 2023
Who is affected?
A lot of taxpayers will now meet the requirements to follow the MTD rules. They must prepare for changes to reporting income and paying taxes to HMRC online on a quarterly basis, rather than filing annual self-assessment tax returns.
Essentially, if you currently file a self-assessment tax return, you are likely to be affected from 2023. HMRC have confirmed that employees paid via Pay As You Earn and pensioners will not be impacted by the move to digitised reporting under MTD. If you have secondary income of less than £10,000, you also will not be affected.
We can assist you with ensuring your records are recorded using MTD compatible software. Increasingly, app based software can enable information to be transferred either to HMRC, or to your tax advisers. This will take away a large part of the hassle of data gathering for your tax return.
If your current records are not compatible, we can advise on appropriate software for you. We can also assist with moving over your records as seamlessly as possible.
As more information is announced we will keep you updated.
Find out more
If you have any questions regarding Making Tax Digital, please get in touch with one of our team.