Making Tax Digital (MTD) for Businesses project is HMRC’s ambitious project to make the tax system advanced and efficient. After much consideration about the rate and scale of changes, the government has recently postponed the Making Tax Digital scheme to April 2019.
MTD was introduced in the March Budget of 2015. MTD is a part of HMRC’s initiative ‘Transformed tax system and end of tax return’ with an objective of making HMRC one of the most digitally advanced tax administrations in the world by 2020. Digital tax is expected to make tax administration effective, efficient and easier for tax payers. The major reforms included tax simplification, digital tax account for individuals and businesses, online payment and tax in one place.
The law was passed after the government identified a tax gap of 8 billion pounds in its tax receivables.
MTD is based on the following four foundations:
According to MTDfB (Making Tax Digital for Businesses), from the financial year starting after 2018, for tax purposes, the 5.4 million businesses including 1.6 million companies, 2.4 million unincorporated businesses, 900,000 landlords and 400,000 partnerships must:
MTD for VAT was expected to come into force in 2019 and Corporation tax from 2020.
In the Spring Budget 2017, the government announced a one-year deferral from the requirements of MTDfB for businesses with a turnover of upto the VAT threshold.
MTD was expected to be the biggest change in the way taxpayers would engage with HMRC since the introduction of PAYE in 1945. The transformation was set to be rolled out in a phased manner, before it was dropped from the finance bill on 25th April 2017. However, it is believed that it is not abandoned yet, but is put on hold. Having encountered much criticism on over-ambitious timelines, costs and administrative burdens on small industries and insufficient engagement and consultation, it was expected that the MTD will be revisited and reappear later in the following financial bills with a clear roadmap for implementation.
On 13th July 2017, HMRC came up with a new timeline for implementation. According to the new timetable, only those businesses with Annual Turnover above VAT threshold (£85,000) will be expected to adhere to quarterly reporting and digital record keeping, specifically for VAT purposes. Those businesses with an annual turnover below VAT threshold will not be mandated to keep digital records nor adhere to quarterly reporting and annual reconciliation, at least until 2020. However, small businesses can adhere to the quarterly filing, annual reconciliation and digital record keeping on a voluntary basis if they wish to do so.
Commitment by the government towards delivering modern digital tax system has been reassured. Every business and individual now have digital tax accounts and they are regularly improvised. As a result, now businesses would have enough time to understand and adapt to the changes. And also, this deferral has provided time for HMRC and software providers to ensure the systems are compatible.
DataTracks’ role in supporting MTD:
As part of our preparation to support HMRC’s MTD programme, DataTracks would be ready with services and solutions to meet all MTD requirements as and when the mandate kicks in from HMRC.