Making Tax Digital (MTD) is HMRC’s initiative in transforming our current tax system into a modern paperless online system, more suited to the digital business world.
In the March 2015 Budget, the government announced plans to transform the tax system and HM Revenue & Customs (HMRC) published the Making Tax Digital roadmap. As part of the implementation plan for MTD, HMRC has published six consultation documents, which target specific customer groups and include proposals for modernising the way individuals and businesses pay tax.
Overview of the MTD consultation documents
The six consultations consider the following:
- Bringing business tax into the digital age – how digital record-keeping and reporting should operate.
- Simplifying tax for unincorporated businesses – looks at reforms to the basis period rules for self-employed individuals, proposals to extend cash basis accounting to larger businesses, reducing reporting requirements for businesses, and removing the need to distinguish between capital and revenue for businesses using the cash basis method.
- Simplifying cash basis for unincorporated property businesses – proposal to extend the cash basis method for landlords.
- Voluntary pay as you go – looks at the options for taxpayers required to keep digital records and manage their voluntary payments, how voluntary payments will be allocated across the taxpayer’s different taxes and the best way of dealing with the repayment of voluntary payments.
- Tax administration – aspects of the tax administration framework that need to change to support MTD. Also contains proposals to align certain aspects of the framework across taxes and simplify late interest and late payment penalties.
- Transforming the tax system through the better use of information – how HMRC can make better use of information received from third parties to provide a more transparent service for customers that reduces end-of-year under-payments and over-payments and eventually remove the need to complete tax returns.
What does Making Tax Digital mean?
Interaction with HMRC will become increasingly more digital and most businesses, self-employed and landlords will use software or apps to maintain records and to provide regular updates of information.
Beneficially tax payments and repayments will also be managed digitally by customers, providing them with greater flexibility and control of their tax affairs.
What does Making Tax Digital cover?
At present, the consultation documents consider unincorporated businesses, sole traders and landlords. Consultations for limited companies are expected later this year. Unincorporated businesses and landlords with annual turnover less than £10,000 will not be required to maintain records digitally or update quarterly. The documents also confirm that those who cannot go digital will not be required to.
What taxes does Making Tax Digital include?
MTD will apply in respect of income tax, national insurance contributions (NIC), capital gains tax and VAT. In due course, proposals for including corporation tax will be released.
When will Making Tax Digital commence?
It is proposed that MTD will be implemented from April 2018 for unincorporated businesses and from April 2020 for limited companies.
Have your say
The consultation period runs until 7 November 2016 and HMRC is inviting responses and having discussions with interested parties. HMRC will publish a response as soon as possible after 7 November, followed by draft legislation.
Grant Thornton is reviewing the consultations and will comment on them. If you would like to make any contributions through us, please get in touch.