Making Tax Digital Legislation
HMRC's vision to digitalise the UK tax system is well underway in the form of Making Tax Digital.
This legislation requires the filing of tax returns four times a year, rather than once annually, as with the current requirement. According to the government, filing returns more regularly will make it easier for businesses and individuals to get their “tax right and stay on top of their affairs”, as there will be less work required than compiling the information in one large chunk, which is presently the case.
According to HMRC, the Making Tax Digital legislation will fulfil its ambition to become “one of the most digitally advanced tax administrations in the world”.
Businesses and landlords will be required to use commercial software to maintain their records and to update HMRC quarterly. This includes unincorporated businesses, companies, LLPs, and charities.
The new system – which comes into effect in April 2019 – will initially apply to businesses with a turnover above the VAT threshold (currently £85,000).
Businesses registered for VAT but with turnover below the VAT threshold can opt in and file their VAT information via MTD if they wish.
There is some concern among those in the finance and accountancy sectors that this “modernising” of the tax system will have firms very quickly yearning for a return to the good old days with filing tax returns by 31 January each year.
At this time we understand there will be no free software for MTD for VAT. HMRC is working closely with software providers to ensure a range of suitable products will be available.
The use of spreadsheets will be permitted although they will need to be combined with third-party commercial software, using APIs, to ensure a seamless flow of data from the business to HMRC (and vice versa).
MTD for Limited Companies will not be mandatory until April 2020 at the earliest. If you are not currently collating your records digitally now is the time to consider how you are going to conform with the new regulations!
