Latest developments on ‘Making Tax Digital’

23/09/2016

By 2020 HMRC will have moved to a fully digital tax system where unnecessary form filling is eradicated, time delays are eliminated and taxpayers will have access to their full digital accounts – transforming the experience of millions of taxpayers.

David Gauke MP, Financial Secretary to the Treasury, 2015

The government’s ambition is to ‘create one of the most digitally advanced tax administrations in the world’. Joining up HMRC’s various tax systems is central to their plan. The aim is that every individual and every company will have a single digital record that reflects all of their tax records. This will create greater transparency for both the taxpayer and HMRC.

Making it work

Strategic changes of this size and type require a lot of two-way communication.

HMRC has recently outlined the details of their ‘making tax digital’ strategy in a series of six consultation documents which focus on unincorporated businesses. These cover:

• Small businesses, the self-employed and smaller landlords – an easier way to understand and respond to the consultations
• Digital record keeping for businesses
• Proposals for simplifying tax for unincorporated businesses
• Simplification of the cash basis for unincorporated property companies
• Voluntary pay as you go arrangements
• Proposals for simplifying how HMRC administers tax as part of the ‘Making Tax Digital’ initiative
• Using third party information more effectively to provide a more transparent service

Responses to these consultations must be made by 7th November 2016 and a further consultation for companies is expected later this year.

HMRC has also published a timeline for the implementation of the making tax digital strategy: Income tax and NICs from April 2018, VAT from April 2019 and Corporation Tax from April 2020. A more detailed summary of HMRC’s timeline can be found here.

The story so far

By 2020 most businesses, self-employed people and landlords will be required keep their records and provide HMRC with regular updates through the use of a piece of software. Updates on income and expenditure must be sent to HMRC on a quarterly basis, or more often if the taxpayer wishes. Accounting adjustments and claims for reliefs/allowances can also be included in the updates.

An ‘End of Year activity’ report is the final opportunity to make adjustments and finalise their position for the year. This must be prepared and submitted no more than nine months from the end of the taxpayer’s period of account.

Other changes will include the simplification of the Income Tax basis period rules, reforming the capital/revenue divide in the cash basis and in partnerships and property let jointly, allowing one partner or landlord to hold the responsibility to comply with Making Tax Digital.

Keeping you informed

We will be putting forward our own comments on the consultation and will update you on developments in the implementation of the Making Tax Digital strategy and the outcomes of consultations as they arise.

For help and advice on making the transition to digital tax accounts please contact, Paula Jeffs or your usual WMT tax adviser.