Insights

POLICY ON HOLD UNTIL AFTER GENERAL ELECTION

This month, April 2017, was supposed to have been the official start of the Making Tax Digital (MTD) initiative, with the launch of a special pilot programme. MTD was intended to ultimately mean the end of submitting the dreaded paper tax returns as we know them, but it’s going to be a slow process, made slower still by a last minute government decision to exclude the MTD proposals from Finance Bill 2017 which receives Royal Assent on 28th April 2017.

Until the results of the June 8th general election are known, we do not yet know how this policy will be introduced, but below are details of what was originally proposed.

Firstly, some organisations won’t have to implement the changes until 2020 and the change over dates vary according to business turnover levels. For the large proportion of people who own and rent out a residential property for which a tax return is due, action may need to be taken much sooner. This information will need to be submitted electronically, via a digital tax account, possibly as early as April 2018 if the original proposals are ultimately followed.

Why is tax turning digital?

The government is always looking for ways to streamline the administration of the tax system and at the same time, ensure it collects as much tax revenue as possible. By ensuring every taxpayer regularly inputs information into their own unique tax account, HMRC will have a much better way of keeping track of taxable income levels and managing the payment of liabilities. It also means that taxpayers (and HMRC!) will regularly be able to see a complete picture of their business and personal tax affairs, rather than just once a year.

What will change for you as a taxpayer?

Every small business owner and individual will be given access to a digital account, through which they will check their records and manage communications with HMRC, including submitting information about income and revenues. If you use an accountant, they will be able to handle this on your behalf.

Rather than waiting until the end of the tax year to calculate liabilities, tax payments will be calculated and processed throughout the year at set times, via the digital account.

This will require the use of software or apps to maintain records of income and expenditure although some spreadsheets could be acceptable if they meet HMRC’s technical requirements. Many taxpayers will prefer to use commercial software and there are a variety of brands available, for example Sage, Xero, QuickBooks or FreeAgent. HMRC will potentially also make some other free software tools available.

What are the important dates?

April 2017 – Pilot programme begins. Those involved in the pilot will begin to use digital tax accounts and see an overview of their tax liabilities in one place between July and December 2017.

July - Dec 2018 – Phased roll out to unincorporated businesses (this includes landlords renting residential property) begins. This will also include employees on PAYE who have a second income stream via a small business and complete a tax return. All businesses, self employed people and landlords with turnover ABOVE the VAT threshold will need to start updating HMRC quarterly with income tax and NIC obligations through their digital tax accounts.

April 2019 – Implementation for businesses with turnover BETWEEN £10,000 and the current VAT threshold (£85,000) will need to start updating HMRC quarterly. Making tax digital commences properly for VAT figures and returns.

April 2020 – All other businesses, self employed people and landlords will be required to update HMRC quarterly with their tax obligations.

Are there benefits to making tax digital?

For property landlords who don’t already have ongoing accounting records, the introduction of a real-time tax system will mean they have an ongoing view of financial performance at regular intervals and be in a position to budget more effectively.

What do I need to do?

Everyone will be affected by making tax digital and will need to have a plan in place for when they need to start submitting their quarterly information updates. If you are a business owner, or property landlord with questions, or you would like some specific advice about managing the transition, please contact partners@rjp.co.uk.