25 July 2017

Making Tax Digital: What’s the latest?

The Government recently announced that Making Tax Digital will be pushed back to at least April 2020 for all taxes except VAT.

The Making Tax Digital initiative seeks to bring taxation into the digital age. The Government’s plans will automate and streamline certain processes, but will also impose additional compliance obligations on taxpayers. Whilst the rules were originally due to commence from April 2018, the Government has announced that they will be delayed in the most part until April 2020 at the earliest.

What is 'Making Tax Digital'?

Last year, the Government published six consultation documents under the heading ‘Making Tax Digital’ (MTD). These dealt with a variety of proposed changes to the tax system, such as simplifying the cash basis and extending this to unincorporated property businesses. However, the changes proposed by the document ‘Bringing business tax into the digital age’ were by far the most crucial.

Under these proposals, businesses will be required to store records digitally and make quarterly submissions, in addition to the submission of an end of period statement.

When will the rules come into force?

The rules were originally intended to come into force for income tax and NIC purposes from April 2018. However, this has been pushed back to at least April 2020 for all taxes except for VAT. Only businesses with turnover exceeding the VAT threshold will be required to comply with the rules from April 2019 but then only for VAT purposes.

Making Tax Digital timetable

The expected dates of implementation are set out below, however these are subject to the provisions of the upcoming Finance Bill:

For income tax and NIC purposes Unincorporated businesses (sole traders, property businesses and partnerships) with annual turnover above the VAT threshold of £85,000 6 April 2020 (at the earliest)*
For VAT purposes Incorporated and unincorporated businesses with annual turnover above the VAT threshold of £85,000 6 April 2019*
For corporation tax purposes Companies within the charge to corporation tax, regardless of turnover 1 April 2020 (at the earliest)
*Businesses with turnover below the VAT threshold may choose to enrol voluntarily, as explained below. 

Who will the rules apply to?

Broadly, MTD will apply to all businesses from the dates listed above, unless they are specifically exempt. Originally it was intended that unincorporated businesses and landlords with an annual turnover of less than £10,000 would be exempt from the regime.

However, a recent written ministerial statement on the Finance Bill stated that ‘Businesses with turnover below the VAT threshold will not be required to use the system but can choose to do so’. The Treasury further clarified that ‘This means that businesses and landlords with a turnover below the VAT threshold will be able to choose when to move to the new digital system’.

Whilst these comments might suggest that, for income tax, NIC and VAT purposes, all businesses with turnover below the VAT threshold will not be required to use the system, it is not clear whether this is simply a matter of timing (i.e. these businesses might be required to comply with MTD from April 2020 or later for certain purposes). The position should become clearer once the Finance Bill is published later this year.

There will be various other exemptions, such as an exemption for those considered to be ‘digitally excluded’, including members of religious societies whose beliefs are incompatible with using electronic communications, and persons unable to interact digitally for reasons of age and other factors.

How can we help

Clearly, these proposals will place a significant compliance burden on most businesses and support may be required.

We are happy to advise on any transitional issues that businesses may encounter due to the changes. In addition, we can assist in the preparation of quarterly and end of year activity reports, and with any other ongoing compliance obligations from a tax perspective. 

Please do not hesitate to contact us if you would like any advice. 

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