Making Tax Digital
HMRC will soon be bringing in its Making Tax Digital (MTD) regime, which is seen as one of the biggest changes to UK tax reporting since Self Assessment was introduced in the 1990s. MTD will ultimately require taxpayers to move to a fully digital tax system. The first tax to be affected by MTD will be VAT, with the new rules coming into effect from 1 April 2019, with other taxes following on at a later date.
Making Tax Digital – VAT
For VAT return periods beginning on or after 1 April 2019, businesses (including both individuals as well as partnerships and companies) with a taxable annual turnover above the current VAT threshold of £85,000 will be required to keep digital records and provide VAT return information to HM Revenue & Customs (HMRC) using ‘functional compatible software’. This is ‘a software program, or set of software programs, products or applications, that must be able to:
- record and preserve digital records (as specified by the MTD regulations)
- provide to HMRC information and returns from data held in those digital records by using the API platform
- receive information from HMRC via the API platform
Making Tax Digital – Other Taxes
At some point, MTD for income tax and corporation tax will be introduced, and MTD for VAT may be extended to include all VAT registered businesses.
Under HMRC’s original MTD proposals, all businesses (to include sole traders, landlords, partnerships and companies, other than unincorporated businesses with an annual turnover of less than £10,000) must submit accounts to HMRC quarterly (rather than the current annual submission) digitally and must maintain digital business records.
This was, until the 2019 Spring Statement, going to be introduced from April 2020, but has now been postponed.