Making Tax Digital- Further Information
Making Tax Digital- Further Information The government announced ‘Making Tax Digital’ (“MTD”) as its vision for reforming the tax system in the spring budget of 2015. At present, the bill is on hold due to the General Election on 8th June 2017 but it is due to continue moving forward after the election. The reform will affect businesses, self-employed people, landlords and those in employment who have a secondary income of more than £10,000 per annum. HMRC have said that it will make it easier to track tax liabilities and reduce the likelihood of errors. Who Is Likely to be Affected and When? 2018-19 The self-employed and unincorporated landlords with net turnover above £85,000 will be required to record their business-related transactions digitally using MTD compliant software and update HMRC on a quarterly basis for income tax and National Insurance obligations. 2019-20 All VAT registered businesses, whether they are filing quarterly updates or not, will be required to file VAT returns using MTD compliant software. The self-employed and unincorporated landlords with net turnover below £85,000 and above £10,000 will be required to record their business-related transactions digitally using MTD compliant software to update HMRC on a quarterly basis for income tax and National Insurance obligations. 2020-2021 Companies, complex partnerships and everyone who pays Corporation Tax will need to record their business-related transactions and update HMRC using MTD compliant software on a quarterly basis. Businesses, the self-employed and landlords with turnover under £10,000 are exempt from these requirements. What Does It Mean for You and Your Business? The changes will affect most businesses, including micro and small businesses. This includes around 3.3 million self-employed individuals (including around 900,000 landlords), 1.6 million companies, over 400,000 ordinary partnerships and about 600,000 businesses with income from different sources (i.e. both self-employment and property). HMRC has said that it is expected that businesses will incur transitional costs in moving to the new arrangements. It estimates these costs to average £280 per business. These costs are likely to be in the purchasing of new MTD compliant software and apps, and time spent in businesses familiarising themselves with the new digital tools and quarterly submission procedures. Quarterly Updates and End of Period Statement Due to the upcoming election, plans have been temporarily put on hold for MTD but HMRC has made it clear that it will be requiring quarterly digital reporting going forward. In addition to quarterly reporting, an End of Period Statement (EoPS) will need to be filed. HMRC has said the deadline for this return will be the earlier of 10 months after the accounting period end and the 31st January following the end of the tax year. At this point the tax payer can make any adjustments, if necessary, and must then declare that they have submitted complete and correct information regarding their trade. With both quarterly and end of period submissions to HMRC a separate update will be required for each trade or business undertaken by the taxpayer. For example, a self-employed person who also has rental income will have to submit quarterly returns and End of Period Summaries for their self-employed trade and another set for their letting business. In addition, a “final declaration” will also need to be submitted. This is the new name for the annual tax return. This is where the taxpayer needs to report any information not included in the EoPS (such as savings or employment income) and make any claims. Conclusion It is possible that some of the deadlines for submitting updates, statements and declarations may change but what is clear is that submissions to HMRC will be required six times a year:
- 4 updates (per trade)
- 1 End of Period Statement (EoPS)
- 1 Final Declaration