What Making Tax Digital means for your taxes
6th November 2017
Making Tax Digital (MTD) has been one of the buzz topics of 2017 among industry professionals, businesses and taxpayers alike.
HMRC is pressing ahead with its ambitious plan to become one of the most digitally advanced tax administrations in the world, although at a much slower pace than initially planned.
Digital accounts will eventually impact on all businesses and self-employed workers in the UK when it comes to paying income tax and VAT.
But what will this mean for your tax planning tactics?
How will Making Tax Digital affect cashflow?
Small businesses all over the UK were able to breathe a collective sigh of relief when HMRC confirmed it will not require digital records, or quarterly reports, from SMEs until at least April 2020.
The revenue’s move to delay the digital transition has gone some way to alleviating concerns of an imminent cashflow crunch – at least for now.
Under the old timeline, some small firms feared being forced to submit quarterly returns for the first time and potentially paying 2 years’ tax in a single financial year (1 in arrears and 1 for the current tax year).
While small firms have more time to manage the transition towards digital accounts than initially thought, the process of MTD essentially remains unchanged.
It’s up to you to ensure your business has its house in order in time ready for when MTD affects you.
Will Making Tax Digital change how VAT is reported?
VAT-registered businesses with turnover above the VAT threshold (£85,000 in 2017/18) will be the first to go through MTD for VAT purposes only from April 2019.
The digital system for VAT is being piloted now, with private testing on a small-scale basis. A wider test will follow in spring 2018.
No business will be mandated for MTD before April 2019, until a year of full testing is complete.
Will Making Tax Digital impact on income tax and national insurance?
Digital reporting of income tax and national insurance contributions will be gradually phased in for businesses, landlords and self-employed taxpayers.
The self-employed will have the opportunity to pay income tax through optional ‘pay as you go’ instalments, based on the date submitted with HMRC under the MTD initiative.
However, for the smallest of businesses with annual turnover between £10,000 and £85,000, digital accounting will be available on a voluntary basis for payment of all taxes.
This will enable all businesses and landlords with turnover below the VAT threshold to choose when to move to digital accounts at the most suitable time.
All businesses will have at least 2 years to prepare and adapt to the changes before keeping their records digitally for taxes other than income tax.
If you have any further questions on MTD, talk to us on 0117 973 3377 or email firstname.lastname@example.org to speak to an adviser.