Making tax digital for business and quarterly updates

Fundamental changes are being made to the way the tax system works – transforming tax administration so it’s more effective, more efficient and easier for businesses.

Making tax digital (MTD)

At the March 2015 Budget, the Government set out the vision for a transparent and accessible tax system fit for the digital age – putting an end to the tax return for good.

Millions of small businesses are already using HMRC digital accounts. In 2016, every individual and small business will have access to their own secure digital tax account – like an online bank account – that enables them to interact with HMRC digitally.

By 2020, HMRC will have moved to a fully digital tax system where:

  • Businesses have access to digital accounts enabling them to register, file, pay and update their information at any time
  • The tax system operates more closely to ‘real time’ keeping the business up to date and stopping tax due or repayments owed from building up
  • Businesses will no longer have to wait until the end of each tax year before knowing how much tax they should pay, avoiding any nasty surprises
  • For the vast majority, there will be no need to fill in an annual tax return – most businesses will keep their records using digital tools and send that information quarterly to HMRC.

More details about how this will work are set out in the consultation responses that are found on the HMRC website.

The HMRC will be introducing these changes gradually, starting with Income Tax (2018) before moving on to VAT (2019) and ttheCorporation Tax (2020). The plan is to pilot these changes with businesses from April, starting slowly and ramping up to hundreds of thousands, before rolling them out. This will ensure the software is user friendly and gives individuals and businesses time to prepare and adapt.

Digital support is already available

HMRC already provides a wide range of digital services and support for businesses and the self-employed. For example, over 1 million small businesses accessed HMRC’s digital help and support last year.

There is further information provided by the HMRC that provides an overview of the digital support the HMRC is currently providing to small businesses. It also sets out clear plans for the next phase of digital transformation and explains the types of digital support available.

Quarterly in-year updates

Under the new Making Tax Digital for Business changes, businesses will only need to report summary information produced direct from the software, on a quarterly basis. This will exclude transaction data.

The software will help the business to categorise and summarise the information, so the process of providing the quarterly update will be a straight forward process.

The business will finalise its taxable profit after the end of the period of account as part of the end of year process and be able to make amendments at any time it chooses up to the final declaration.

These quarterly submissions are for summary information only and there will be no requirement for businesses to submit four tax returns over a twelve month period.

Start date for digital tax reforms has been recently confirmed

The start date for Making Tax Digital (MTD) has been confirmed by HMRC as April 2018. However, a ‘soft landing’ approach means penalties for late filling of quarterly tax reports will not apply until April 2019. HMRC has updated the details of the next steps for Making Tax Digital here. 

HMRC has confirmed that charities will be exempt from MTD, while self-employed workers and landlords with an annual turnover of less than £10,000 will also be exempt. Read more about the exemption of charities from MTD here.

Firms will be able to use spreadsheets to record expenses under MTD, although the spreadsheet software must be compatible with software that can send updates to HMRC.

Making the taxman work for the taxpayer

There has been an interesting research paper released from New TaxPayers’ Alliance research. They deal deals with new legislation such as the requirement for companies to provide tax updates on a quarterly basis, and argues forcefully that HMRC should compensate taxpayers when they overstep the mark.

Making sure you and your company are protected

As more and more information is stored and transferred digitally, we need to make sure that information and data are stored safely and securely.

That is why we offer Cyber protection as part of our membership and we would advise all of our members to take advantage of the cyber tool that comes freely available. This tool helps to ensure that our members are doing everything in their power to protect themselves from Internal and third party cyber breaches. Cyber security makes good business sense in this new, growing digital age and reduces a big risk element to any business.

Ian’s update

Ian shares his thoughts on the new digital tax for business and the quarterly updates in his own blog post. 

Useful supporting documentation and links