The Government’s plans to implement their Making Tax Digital project has been delayed by at least two years until 2020.
Background:
In the Spring Budget of 2015, the Government announced their plans to overhaul the current tax system by requiring the majority of UK businesses to use accounting software and requiring the submission of summarised financial data to HMRC on a quarterly basis.
Concerns raised by parliamentary bodies, businesses and the accountancy profession about the scope and pace of the reforms has now resulted in the paring back of the timetable, which was originally set to ‘go live’ from 2018.
Originally, HMRC’s plans would have seen unincorporated businesses with turnover of more than the VAT threshold (currently £85,000) start to report quarterly from April 2018. Businesses with turnover below the VAT threshold will now be exempt from this requirement until such time that the Government can reassess their plans. At the time of writing it is not clear when this will be.
New Timetable:
Broadly, the new timetable will now take the following form:
Only businesses with a turnover above the VAT threshold (£85,000) will have to keep digital records and even then, only for VAT purposes. This will come into effect from April 2019.
Businesses will only have to keep digital records and update HMRC quarterly for other taxes from 2020 at the earliest, instead of 2018 as originally proposed.
Small businesses and landlords with turnover below the VAT threshold can opt to file digitally on a voluntary basis for other taxes straight away, if they wish to do so.
VAT Requirements:
As VAT already requires quarterly returns, no business will need to provide information to HMRC more regularly than they do now. It’s not clear whether businesses will need to maintain their records on accounting software at this stage although it is likely.
Corporation Tax:
The latest guidance has indicated that incorporated businesses will be required to use digital accounting for corporation tax reporting but not before at least 2020.
The Government’s Next Steps:
The legislation to give effect to Making Tax Digital which was removed from the streamlined Finance Act 2017 will now be reintroduced. The Government will roll out a pilot Making Tax Digital for VAT before the end of 2017 using small scale, private testing before introducing a wider, live pilot in Spring 2018. This means that the Government will have at least a year of testing to scrutinise the system before making it compulsory for any business to use the system – no business will be required to do this before 2019.
Mitchell Charlesworth’s Next Steps:
Whilst the government’s plans have been delayed Mitchell Charlesworth are continuing to work with leading software providers to facilitate the smooth transition to digital reporting to improve the efficiency of bookkeeping and accounts preparation. We will continue to provide clients with advice, support and training for those who wish to make the switch to a cloud accountancy package, which will be fully compliant with the Making Tax Digital initiative when it comes to fruition. We will keep our clients and contacts updated once further information is available.
In the meantime if you have any other questions then please do not hesitate to contact the Making Tax Digital team below. Alternatively you can send us a quick enquiry.
