Making Tax Digital is the government’s initiative to make it easier for businesses (and individuals) to have more control and visibility of their tax. The aim is to bring an an end to the annual tax return by clients keeping digital records and sending quarterly updates to the HMRC.
Announced in the budget of March 2015, this is part of the government’s vision to modernise the tax system.
So, are you ready?
In the budget of 2017 the government announced that 3.1 million small businesses have until 2019 before they are required to keep digital records alongside sending HMRC quarterly updates.
The 4 key parts of Making Tax Digital
Better use of information
By having digital tax accounts, business owners will be able to (at any time) view the information that HMRC holds about them to make sure it is correct.
Real time tax
With the HMRC collecting tax information when it happens, business owners can know how much tax they should pay straightaway, rather than waiting until the end of the year.
One financial account
The goal is that by 2020, taxpayers will be able to see all of their liabilities and entitlements in one digital financial account.
Digital interaction with the HMRC
With business owner’s digital record keeping software being linked directly to HMRC software systems, the software itself will be able to send and receive information.
What happens next
These changes are being gradually introduced, starting in 2018 with Income Tax for businesses, self-employed people and landlords with annual turnover above the VAT threshold.
In 2019-20 the Income Tax elements of Making Tax Digital will be extended to all businesses, self-employed people and landlords with annual turnover above £10,000.
VAT will be addressed in 2019 and Corporation Tax in 2020.
The changes are currently being piloted with businesses.
If you have any questions about this or any aspect of your accounts and taxation needs, do get in touch.