Making Tax Digital is the most fundamental change to the administration of the tax system for at least 20 years.
The essential elements for businesses and landlords are:
Paper records will no longer be sufficient
It will become mandatory for almost all businesses and landlords to use software or a spreadsheet to keep accounting records. Paper accounting records will cease to meet the requirements of tax law.
There will be a requirement to submit updates to HMRC each quarter directly from accounting software.
As of 01 April 2019, if you file a VAT return it will need to be done through Making Tax Digital complaint software, which means, you will no longer be able to submit VAT returns manually through the HMRC gateway.
Sage says that 89% of business will have to change the way they submit VAT.
The end game is for Making Tax Digital to cover all areas of tax in the UK, therefore it is being introduced in stages and first stage is only around the corner!
The first phase affects those businesses that have turnover above the VAT threshold of £85,000. This means those businesses will need to start keeping digital records and submitting all VAT returns via Making Tax Digital complaint software.
April 2020 – The second phase but exact details not yet confirmed by HMRC. But as an idea here are some guidelines below;
Income Tax (self-employed, partnerships, trusts and landlords who compete tax returns) Making Tax Digital is expected to become mandatory for income tax reporting, but not before 2020.
Corporation Tax (limited companies)
HMRC have not yet confirmed the timings for Making Tax Digital for corporation; but it will not become mandatory before April 2020.
What are the exemptions?
There are exemptions for those who are not able to engage digitally for religious reasons or due to a factor such as age, disability or location (eg, no availability of broadband). These exemptions are the same as the current exemptions for VAT online filing.
VAT registered businesses with turnover of less than the VAT threshold (ie, businesses who have registered voluntarily) will initially be exempt from Making Tax Digital VAT reporting but this exemption may be removed from 2020 or later.
When Making Tax Digital for income tax becomes mandatory there will be an exemption for businesses and landlords with a very small turnover; HMRC have not yet set the level.
What do I need to do now?
The Making Tax Digital team will need a discussion around the transition needed.
The Making Tax Digital team will create a plan for the transition.