Introduction to Making Tax Digital

Making Tax Digital is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs – meaning the end of the annual tax return for millions.

Businesses will not now be mandated to use the Making Tax Digital for Business system until April 2019 and then, only to meet their VAT obligations. This will apply to businesses who have a turnover above the VAT threshold – the smallest businesses will not be required to use the system, although they can choose to do so voluntarily.

We expect many of these businesses to take the opportunity to provide quarterly updates for other taxes too, but there will be no mandatory requirement to do so.

Similarly, businesses that are not VAT registered and those below the VAT threshold who have voluntary registered for VAT can opt to join Making Tax digital for Business.

The government remains committed to ensuring we can deliver a modern digital tax system for all businesses and their agents, supporting them to get their tax right and reducing the amount of tax lost through avoidable error.

Four foundations of Making Tax Digital

1. Better use of information

Making Tax Digital presents significant benefits for our customers. It will mean that they will not have to give HMRC information that it already has, or that it is able to get from elsewhere – for instance from employers, banks, building societies and other government departments.

Digital tax accounts for all will mean that customers can see the information that HMRC holds and be able to check at any time that their details are complete and correct. HMRC will use this information to tailor the service it provides, according to each of our customers’ individual circumstances.

2. Tax in real time

Our customers should not have to wait until the end of the year or longer to know how much tax they should pay. HMRC will collect and process information affecting tax as close to real time as possible, to help prevent errors and stop tax due or repayments owed building up.

3. A single financial account

Most taxpayers cannot see a single picture of their liabilities and entitlements in one place – we are changing that. By 2020, customers will be able to see a comprehensive financial picture in their digital account, just like they can with online banking.

4. Interacting digitally with customers

Our customers (and their agents) will be able to interact with HMRC digitally and at a time to suit them. They already have access to a digital account which will present them with an increasingly personalised picture of their tax affairs, along with prompts, advice and support through webchat and secure messaging. And digital record keeping software will be linked directly to HMRC systems, allowing customers to send and receive information directly from their software.

Next steps

The first businesses have already started keeping digital records and providing updates to HMRC as part of a live pilot to test and develop the Making Tax Digital service for income tax and NICs and we will continue to expand this pilot.

The government will re-introduce the legislation to give effect to Making Tax Digital for business that was published in the Finance Bill after the Spring Budget.

We will start to pilot Making Tax Digital for VAT by the end of this year, starting with small-scale, private testing, followed by a wider, live pilot starting in Spring 2018. This will allow for well over a year of testing before any businesses are mandated to use the system. No business will be mandated before 2019.

From April 2019 businesses above the VAT threshold will be mandated to keep their records digitally and provide quarterly updates to HMRC for their VAT.

Beach Accountants Limited

Beach Accountants have already started the process of ensuring that it is prepared for Making Tax Digital by becoming Certified and Trainers for several Cloud accounting software and processing clients data digitally so that there is a smooth transition for the new government reporting system to be introduced.

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