How will Making Tax Digital impact on you?
News & blog » The digital tax revolution moves a step closer
February 24, 2017
At the end of January, HMRC reported the outcome of their consultation in relation to Making Tax Digital (MTD), which covered 6 consultation papers.
According to HMRC, Making Tax Digital is built on four foundations: Tax simplified, Tax in one place, MTD for business and MTD for individual taxpayers.
There will be some benefits, such as the automation of your interest reporting from deposit holders, real time processing before paperwork is lost, timely knowledge of your tax liability throughout the year and potential cashflow management with payments on account a real possibility. However, the legislation appears to be more for HMRC’s benefit than the business owner. You may argue that in the long term it can save us all some taxation, with lower administration costs at one of governments largest departments and an increase in tax revenues actually paid / collected.
This will certainly change the way most small businesses and individuals report their tax liabilities in the future. HMRC’s reporting plans are to go ahead with effect from April 2018, resulting in quarterly updating and reporting for sole traders, self employed and buy-to-let landlords.
You may have heard references such as; “the annual self assessment return is dead and it will be replaced by four returns a year”. It is looking likely that in fact it will be a quarterly summary reporting based on your digital record keeping, with an end of year (4th quarter) finalisation report / return / adjustment.
Following the consultation, the findings have been summarised together with the next steps.
There is still still much criticism and confusion around the key elements of the legislation. However. as suspected, it was never a case of if the changes would happen, but more of when and realistically how they may be practically implemented.
Some flexibility has been shown, to allow businesses to continue using spreadsheets, free software will be available to the majority of the smallest businesses and businesses that cannot go digital will not be required to do so.
The expectation is that many of us will collate our data using apps and software, which creates the reporting formats to then easily submit the data at the push of a button. Is there a need for accountants and bookkeepers going forward? I guess that question will be one for you to answer in terms of whether you trust your own submissions, trust HMRC and feel you are claiming all that you should or could. For example, how will you claim for your annual investment or capital allowances or adjust for disallowed items?
So quarterly returns and online personal tax accounts will be a reality for many of us very soon. Are you prepared for digital tax?
HMRC have now published more information on how businesses, the self-employed and landlords will benefit from plans to modernise the tax system.