Businesses with turnover above the VAT threshold (£85,000) will be the first to join HMRC’s brave new digital world. This will revolutionise the way many businesses keep their books and accounts. It is HMRC’s hope that by 2020 the tax return as we know it will have been entirely abolished, and all businesses will be required to submit their tax returns digitally.
All individuals and small businesses will have access to digital tax accounts, with the information HMRC needs already automatically uploaded. HMRC believe that you should never have to tell them information they already have and therefore under and over payments should be reduced. Digital accounts will give you a single, personalised view of your tax position across all liabilities and entitlements.
It is proposed that from April 2019, businesses with turnover above the VAT threshold (£85,000) will be required by law to keep their records on accounts software. Many people already do that – but there will be an additional requirement in that, the software must be capable of sending information to HMRC every three months. At present, there is no software on the market capable of doing that, but we know that the major software developers such as QuickBooks, Sage & Xero are working on it.
HMRC call this project “Making Tax Digital” (MTD). The idea is that everyone will use MTD-compatible software, to record all their business transactions. Every three months, the software will (“at the push of a button”) send the data to HMRC. These three monthly uploads will not be accounts as such, and will not include such things as stock valuations or tax adjustments. HMRC are therefore proposing that businesses and landlords will have nine months after their last quarter to make any tax and accounting adjustments required to calculate the tax payable.
HMRC have been consulting with taxpayers, agents and professionals regarding MTD and are currently in the process of collating those responses.
To help our clients we have created two fact sheets and a video to explain HMRC’s plans.
Fact sheet: Making Tax Digital – Individuals