Making Tax Digital

Making Tax Digital (MTD) is a UK government initiative that sets out a vision for the 'end of the tax return' and a 'transformed tax system' by 2020.[1] HM Revenue and Customs (HMRC) states that the main goal of MTD is to make tax administration more effective, more efficient and simpler for taxpayers.[1]

HMRC is implementing the initiative and is working closely with accounting software developers to ensure that taxpayers are able to make the switch to digital tax.[2] The outlined changes apply to a wide range of taxpayers, including most businesses, micro-businesses, self-employed people and landlords, as well as individual taxpayers.

Quarterly tax returns

Under MTD, taxpayers will send HMRC summaries of their income and expenditure at least four times a year. HMRC says this will enable a more ongoing and accurate projection of tax due, as opposed to the current system of one tax bill at the end of the year. To do this, taxpayers will need to integrate their accounts with software in some way. HMRC's 2017 consultation response stated that spreadsheets can be used if they can meet with HMRC’s technical requirements.[3] However, many taxpayers will use more comprehensive accounting software to avoid the complications of linking a spreadsheet to their digital tax account.[4]

Time scale for implementation

Along with a number of clauses, MTD was removed from the Finance Bill ahead of the 2017 general election leading to speculation that MTD had been dropped altogether.[5] However, as yet, HMRC has yet to comment on any changes to the following time scale for implementation:

Date Progress
January – June 2017 Digital tax accounts show taxpayers an overview of their tax liabilities in one place.
July – December 2017 Businesses, self-employed people and landlords with turnover above the VAT threshold start updating HMRC quarterly for Income Tax and National Insurance obligations through accounting software.
2019 Businesses, self-employed people and landlords with turnover between the minimum MTD threshold of £10,000 and the VAT threshold start updating HMRC quarterly for Income Tax and National Insurance obligations through accounting software.
2020 Most businesses, self-employed people and landlords can start updating HMRC quarterly for Corporation Tax obligations through their accounting software.
2020 The full range of HMRC services are available through digital tax accounts.

Uncertainty over MTD

In a survey conducted by FreeAgent, one of the accounting software developers involved in beta testing MTD with HMRC,[6] 84% of respondents thought there was a lack of information about the initiative. HMRC has provided documentation giving an overview of the initiative, but until legislation is set in stone the finer details of MTD, for example, exactly how those exempt from MTD will report their finances, remain unclear.

Exemptions

HMRC has confirmed that the following groups will be exempt from the initiative:

  • The 'digitally excluded', or those who cannot use digital tools for reasons of religion, age, disability, remoteness or any other reason
  • Charities (although trading subsidiaries of charities will not be exempt)
  • Unincorporated businesses and landlords with annual sales below the £10,000 threshold
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References

Making Tax Digital Information site

  1. "Overview of Making Tax Digital - GOV.UK". www.gov.uk. Retrieved 2017-06-15.
  2. "MTD Its full steam ahead for the Pilot". AccountingWEB. 2017-06-12. Retrieved 2017-06-15.
  3. "Summary of consultation responses - GOV.UK". www.gov.uk. Retrieved 2017-07-06.
  4. "Making Tax Digital for small businesses and freelancers". FreeAgent. Retrieved 2017-06-14.
  5. "'Controversial' digital tax returns delayed after being dropped from Finance Bill". The Telegraph. Retrieved 2017-06-15.
  6. "What do small businesses really think of Making Tax Digital?". Freeagent.
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