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Making Tax Digital – what next?

Whilst there have been delays to Making Tax Digital (MTD) plans, it is clear that the matter is not going away.

Over the coming months, all taxpayers will need to consider the implications of making the move to digital services in good time, so that they are up to speed when the proposals eventually become a reality.

Background
After initially announcing the move to MTD during the Budget 2015, the Government will publish its response to the now closed consultations in January 2017, as confirmed by Chancellor Philip Hammond during his recent Autumn Statement speech.

HM Revenue and Customs (HMRC) hopes that by digitalising the UK tax system, the regime could become much less burdensome with a reduction in red tape for small business owners. Some of the benefits cited include:

• Cash-basis accounting – so that smaller businesses can pay tax on what has been received rather than invoiced.
• Prompts and alerts to help businesses get tax right.
• Advice on tax reliefs they might not be aware of.
• Understanding tax bills on a real time basis, rather than having to deal with everything after the year end.

The aim is to replace the annual tax return with real time digital updates for taxpayers.

Whilst this sounds like a step forward for UK businesses, there are also fears that the transition could be burdensome for taxpayers and their advisers.

Timetable
There is still a lot of work to be done before a full transition to MTD can be made:

  • In the same year, capital gains tax on the disposal of residential properties will need to be paid within 30 days of sale.
  • Between January and June 2017, testing is scheduled to start for the digital reporting of income from property.  Meanwhile, taxpayers will be able to report additional sources of income through their digital tax account.
  • A new online billing system will also be brought in before June 2017.
  • Between July and December 2017, HMRC is aiming for the digital tax accounts to show taxpayers an overview of their tax liabilities in one place and automatic tax code adjustments to prevent PAYE under and overpayments.
  • By June 2018, HMRC wish for all interest paid by banks and building societies to be shown in digital tax accounts.
  • Between July and December 2018, it is hoped most affected taxpayers (businesses, self-employed and landlords) will start updating HMRC quarterly for income tax and National Insurance obligations through their accounting software.
  • By 2019, most businesses, the self-employed and landlords are expected to be making quarterly updates to HMRC quarterly for VAT obligations through their accounting software.
  • By 2020, it is expected that all affected businesses, self employed individuals, landlords and companies will start updating HMRC quarterly for corporation tax obligations through their accounting software.
  • By this stage, it is envisaged that the ‘full range’ of HMRC services will become available through the system.

What should taxpayers do now?
It is never too early to prepare for MTD. The sooner you consider making the transition in terms of using software which can be accessed and updated by you and your adviser, the easier the move to MTD will be. Consider taking part in the beta testing phase from April 2017. This will help you and your adviser to understand what your obligations are likely to be as we move towards a full transition to MTD.

For more information contact Kirsty Foster – Senior Tax Manager on 0161 767 1200 or email kfoster@dtegroup.com