A pilot for Making Tax Digital for VAT was introduced at the end 2017 and started with small-scale, private testing. This has now been followed by a wider, live pilot. This will allow for well over a year of testing before any businesses are mandated to use the system. No business will be mandated before 2019.

From April 2019 businesses above the VAT threshold will be mandated to keep their records digitally and provide quarterly updates to HMRC for their VAT.

The government has committed that it will not widen the scope of Making Tax Digital for Business beyond VAT before the system has been shown to work well, and not before April 2020 at the earliest. This will ensure that there is time to test the system fully and for digital record keeping to become more widespread.

HMRC say ‘We will continue to work in close partnership with the software industry and agents to ensure successful implementation of Making Tax Digital for Business’.

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.