HMRC has announced that by 2020 the Making Tax Digital (MTD) initiative will mean that businesses and individual taxpayers can access their own tax affairs online via digital tax accounts.
This new digital world brings both challenges and opportunities for accountants in practice. But accountants are not the only ones to be affected. How are entrepreneurs and other taxpayers affected and what can you do to prepare?
Businesses, landlords, and self-employed people will be required to start using the new digital service from:
a) April 2018 for income tax and National Insurance contribution (NICs) purposes if your turnover is over the VAT threshold
b) April 2019 for income tax and NICs purposes if your turnover is below the VAT threshold (£85,000.00)
c) April 2019 for VAT purposes for everyone who is VAT registered
d) April 2020 for Corporation Tax (CT) purposes for everyone who pays CT
Businesses, self-employed people and landlords with turnovers under £10,000 are exempt from these requirements. Those in employment who have a secondary income of more than £10,000 per year through self-employment or property will also be required to use the digital service.
Why make tax digital?
The UK government recognises that most businesses look for fiscal efficiency. However, research published recently by HMRC suggests that many businesses struggle to fully understand the tax system.
As a result it is estimated that over £8 billion a year in tax is lost from avoidable errors. Making Tax Digital aims to change that and therefore reduce the chances of repeating mistakes. Furthermore, HMRC wants to provide an experience that is more in line with what modern businesses provide, i.e., a digital experience.
For entrepreneurs, MTD provides an opportunity to increase fiscal efficiency and general compliance. The purpose is to simplify how businesses and individuals manage and pay their taxes:
MTD will provide a tailored service
Taxpayers will not have to give HMRC information that it already has, or are able to get from elsewhere, for example from employers, banks, building societies and other government departments. Taxpayer’s digital tax accounts will hold all the information held by HMRC, and can check at any time that the details are complete and correct. HMRC will then be able to offer a bespoke service based on the information registered.
Accurate tax position
Businesses will no longer have to wait until the end of the financial year to find out how much tax they owe. HMRC will collect and process information affecting tax in as close to real time as possible to stop a build-up of tax repayments occurring.
One single platform
By 2020, taxpayers will be able to get a complete financial picture through their digital account, just as they would with their own online bank accounts. Another advantage is that taxpayers will be able to set an over-payment of one tax against the under-payment of another, making it feel like they are paying a single tax.
For more information regarding the “Making Tax Digital” initiative, click here.