In this episode Kevin and Graham chat about the changes coming up in the UK tax system that are going to make a big difference to the way UK businesses will file their taxes in the future. Making Tax Digital is the programme that Her Majesty's Revenue and Customs (HMRC) are rolling out that will make the UK tax system the most technologically advanced tax regime in the world.



Making Tax Digital is coming along over the next 3 years, and is the next big thing to hit us after pensions auto- enrolment.

Tax is already digital to some extent – we all file our tax returns, whether personal, business or VAT online. MTD is much more than just online filing. The UK Chancellor’s budget speeches have mentioned simplifying or getting rid of tax returns, and that’s what Making Tax Digital is all about……. But only if you are an individual. If you are a business there’s a lot more to it, and you need to start thinking about it now.
Making Tax Digital for individuals
Government already receives lots of information from banks, employers, etc but doesn’t really do a whole lot with it that helps the average person. Making Tax Digital changes this and will mean HMRC put this info straight into your “personal tax account” which you can access online. You won’t need to give HMRC the information that comes from your P60, P11D, bank statements, gift aid donations etc.

So, the principal of Making Tax Digital is that information is taken from the various systems that hold it and it gets put into a personal tax account at HMRC.
Making Tax Digital for businesses
A good deal of the information HMRC will need to populate a personal tax account will come from businesses. Employers provide information about tax deducted from employees through PAYE and submit P11D with information about expenses and benefits. The first stage of getting ready for the personal tax account was getting PAYE submissions sorted. Employers use real time PAYE submissions rather than annual returns that were carried over from manual payroll processing. We are now 3 years into real time PAYE submissions.

The next stage that business owners see will be how you submit your business accounts to HMRC.

The big change, an automatic API that sucks information out of your accounting software and into HMRC. You won’t prepare a set of accounts and then go into HMRC’s system to submit them.
At the moment the submission to HMRC is annual, in future it will be quarterly.

We don’t know all the details yet. HMRC issued a white paper, followed by consultation. They have also responded to issues raised during consultation.
When will Making Tax Digital affect your business?
Due to come in in 2018 for larger unincorporated businesses, but the budget statement of a few weeks ago gave businesses under the VAT threshold an extra year, 2019. Companies then follow in 2020. So, for a lot of us, registered for VAT but not operating a limited company MTD is under a year away, and as far as most business owners are concerned it’s implications are a well-guarded secret. So the Making Tax Digital timetable is currently:

2018 - Schedule D income tax for businesses with turnover above the VAT registration threshold
2019 - Schedule D income tax for businesses with turnover below the VAT registration threshold
2020 - Corporation tax submissions from limited companies.

At the moment HMRC say Making Tax Digital won't apply to businesses with turnover under £10k.

UPDATE (29 April 2017): SINCE THE SHOW WAS RECORDED THINGS HAVE CHANGED. THIS IS DUE TO THE SNAP UK GENERAL ELECTION. THE LAST ITEM TO BE RUSHED THROUGH PARLIAMENT BEFORE THE ELECTION WAS THE FINANCE BILL. THE PART OF THE BILL THAT WOULD HAVE MADE "MAKING TAX DIGITAL" LAW WAS REMOVED. THIS IS LIKELY TO DELAY THE PROPOSALS BY A YEAR, AND ITS UNLIKELY ANY BUSINESS WILL NEED TO FILE TAX DIGITALLY UNTIL 2019. http://www.telegraph.co.uk/news/2017/04/25/controversial-digital-tax-returns-delayed-dropped-finance-bill/...

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