Making Tax Digital
Beginning in April 2018, the Government is making wholesale changes to the tax compliance process. Businesses will be expected to maintain digital tax accounts and report to HMRC on a quarterly basis - signalling the end of the tax return and simplifying the procedure for millions. By April 2020, these requirements will apply to most businesses, self-employed people and landlords.
The digital tax accounts will link to accounting software, through which businesses will be able to send the quarterly reports and pay any tax owed on a Pay As You Go basis.
The Four Foundations of Making Tax Digital
HMRC has laid out four key 'foundations' to the Making Tax Digital project.
HMRC wants to get rid of any unnecessary processes when collecting tax information from its sources. Taxpayers would no longer have to provide information which HMRC can obtain from employers, banks, building societies, other Government departments and so on. By doing this, processes should speed up and become more efficient.
Tax In One Place
The Making Tax Digital project is all about making tax as efficient and modern as possible. At present, most taxpayers can't see a single summary of their liabilities and entitlements in one location, so, by 2020, taxpayers will be able to see their complete financial picture in one place - just like internet banking.
Making Tax Digital for Individual Taxpayers
Individual taxpayers will be able to interact with HMRC digitally at a time that suits them. From April 2016, every small business in the UK has access to a digital tax account; this presents them with an individual personalised picture of their tax affairs. Additionally, there are prompts, advice and support through webchat and secure messaging from within each digital tax account.
Making Tax Digital for Businesses
The Government believes that businesses should no longer have to wait until the end of the tax year before knowing how much tax they're due to pay. The idea is that, stemming from Making Tax Digital, HMRC will collect information 'as close to real time as possible' to stop any potential build-up of information and streamline processes. From April 2018, businesses, including the self-employed and those letting out property, will update HMRC at least quarterly where it is their main source of income (or a secondary source of income bringing in £10,000 and their main income is from employment or a pension).
The End of the Tax Return
As part of Making Tax Digital, the changes outlined will bring about the end of the tax return for millions of taxpayers in the UK:
- Most businesses will keep their records using digital tools and send that information at least quarterly direct to HMRC
- Taxpayers with information to submit will do so through their own digital tax account
- A new system of online billing will collect outstanding tax that can’t be collected through PAYE, with no need for Self Assessment tax returns
- Those who currently choose to complete tax returns simply to check their tax is in order will find all the information they need in their digital account
Taxpayers will still be responsible for ensuring that their tax bills are right and telling HMRC about information that is not reported through other means, but digital accounts will make this much quicker and simpler. There were over 10.2 million tax returns recieved by HMRC during 2015-16, and Making Tax Digital intends for this to drop to as close to zero as possible.
How IRIS is Helping Accountants
For those worried that MTD is approaching too quickly, or who don't feel adequately prepared: don't panic. We're on hand to assist you every step of the way towards a fully digital client roster.
Our Making Tax Digital Hub is the primary online resource for accountants seeking to understand HMRC's new initiative. Visit today to discover an array of tools, guides, videos, webinars and events designed to help guide you along your digital journey and turn transition into opportunity.
How IRIS is Helping SMEs
Get ahead of the changes in tax by managing your accounts online today. Join the 70,000 KashFlow users who already create quotes and fully customisable invoices, balance their books and keep track of their business spend, all through digital software.
Try KashFlow today with a FREE 14-day trial and get ready for the digital revolution.