Making Tax Digital: are you up to date?
Following the dropping of Making Tax Digital (MTD) plans from the first Finance Bill of 2017, the government recently outlined new proposals for its landmark digital scheme, to be legislated for in the next Finance Bill, due in the Autumn. Here, we examine the changes.
A new MTD timetable
The government recently stated that it has 'listened to concerns' raised by the Treasury Select Committee and business in regard to the pace of change and the 'short timetable' for the successful introduction of MTD, and will be taking steps to 'ensure a smooth transition to a digital tax system'.
Under the government's new timetable for MTD, from April 2019 businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records and provide quarterly updates to HMRC for VAT purposes only. As VAT registered businesses must already submit quarterly VAT returns, initially firms will not need to supply HMRC with information any more regularly than they do now.
Businesses will not be required to keep digital records or update HMRC quarterly for other taxes until 'at least 2020'.
The government intends to pilot Making Tax Digital for VAT on a small scale 'by the end of this year'. Wider live piloting will begin from Spring 2018.
The four new Making Tax Digital foundations
The government has outlined the four 'foundations' of MTD, which set out the key aims of the new regime as follows:
1. Better use of information
This foundation outlines the perceived benefits of MTD when it comes to obtaining and making use of information. This includes the fact that HMRC will be able to obtain information from other sources, such as employers, banks and other government departments, rather than requiring the taxpayer to provide it.
Digital tax accounts will also allow taxpayers to view the information HMRC holds on them, and to ensure that their information is accurate and up to date. The government also intends to make use of the information to tailor its services to taxpayers' requirements.
2. Tax in real time
HMRC has stated its intention to collect and process taxpayers' information in 'as close to real time as possible'. It believes that this will help to prevent errors and reduce the number of taxpayers who end the year having paid too much or too little tax.
3. A single financial account
By 2020, the government aims to provide taxpayers with a single overview of their tax liabilities and entitlements - in a similar way to online banking.
4. Interacting digitally with customers
Under the new system, taxpayers and their agents will be able to interact with HMRC digitally. Taxpayers will be able to access government advice and support via webchats and secure messaging, and digital record keeping software will be linked directly to HMRC systems.
The MTD changes will be legislated for in the upcoming Finance Bill, which the government will debate following its Summer recess.
The changes to the MTD timetable offer taxpayers additional time to prepare for the new system ahead of its initial introduction in 2019. As your accountants, you can rest assured that we will be keeping up to date on all the latest MTD news and information.