What’s it all about?
The tax system is changing. HMRC announced back in March 2015 its new Making Tax Digital (MTD) initiative and by 2020, HMRC will have moved across to a fully digital system where:
- no more form filing – all information that HMRC knows about a taxpayer will be already in the digital system (e.g bank interest)
- elimination of unnecessary time delays – a ‘real time’ tax system means that everyone is kept up to date, therefore removing the risk of missing deadlines, penalties, debts and errors.
- access to digital accounts for every taxpayer – HMRC will automatically upload information it holds about a taxpayer, bringing the end to the Tax Return.
All this will make HMRC one of the most digitally advanced tax authorities in the world.
The transformed tax system has four key foundations
- Tax simplified – all taxpayers will receive the data and services relevant to them, with extra help for those who need it
- Tax in one place – within the next five years, all taxpayers will be able to use their digital accounts to see an up to date and easy to follow tax overview
- Making tax digital for business – by 2020 most businesses, self employed people and property landlords will need to keep track of their tax affairs
- Making tax digital for individual taxpayers – every single individual taxpayer will have access to their own digital account with HMRC.
Consultation, what could be the outcome?
Consultation with HMRC and accountants & business owners is still currently on going, with accountants and business owners criticising the plans for being too rushed, calling for a delay in the planned April 2018 deadline to be extended for some cases; such as unincorporated businesses and buy-to-let landlords.
HMRC have set the threshold of income above £10,000 p.a as the point at which individuals and businesses will have to enter into MTD and report information to HMRC on a quarterly basis.
However this seems a very random number given that the current personal allowance is £11,000, rising to £11,500 in the 2017-18 tax year, perhaps this would be a more sensible starting point. Some have even suggested that it should be in line with the VAT registration threshold, as these businesses are already reporting some data to HMRC quarterly.
What do you need to do?
Whatever happens during the consultation process, there will be no getting away from MTD, so as a business owner or taxpayer it’s time to prepare for it well in advance.
If you’re currently not using any software at all, then you need to start looking and taking advice from your accountant about which product is right for you and more importantly, which one will do the job. There’s lots of choice out there, take a look at the links below for more information.
If you are already using software but it’s not MTD compatible then again you will need to look at switching from desktop based software to online cloud software. The most popular desktop providers are Sage and Quickbooks, both of whom have a cloud based version available. Again take a look at the links below.
Don’t be fooled into thinking free software is a good thing, they are invariably very limited in functionality and also have limits on the number of transactions that they can handle within the “free” version. Also be mindful of how long the software has been available for, is it still a prototype, will it still have glitch issues that haven’t been resolved?
Need some help?
Here at All In One we are more than happy to give you an overview of the products available and help you to move across to one of them. If your accountant isn’t talking to you about Making Tax Digital, they should be. It’s coming and there’s no getting away from it.
Why not give us a call on 01902 212937 to arrange a FREE no obligation meeting TODAY.