MAKING TAX DIGITAL
H
– plugging the £35bn tax gap
MRC know that the majority of taxpayers want to get their tax right, but the government estimates that many find this hard to do and as a result they are short changed by a simply staggering £35bn or so annually. With this in mind, HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world, which will offer the benefits of making tax administration more effective, more efficient and easier for the taxpayer to get their tax right. It requires businesses to use an entirely digital system for the storage of their accounting records and it also requires that businesses and some individuals use MTD compliant software. This is the future of tax administration in this country with the first round of changes aimed at VAT. Since April 2019 all VAT Registered entities with a turnover higher than the £85,000 VAT threshold had to start submitting their VAT Returns through compliant software. This change felt like an upheaval because business owners were obliged to change their method of calculating and submitting VAT returns. Of course there are plenty of MTD compliant cloud-based software packages available, but they each come with an annual licence fee and a steep learning curve. I’ve written before though that once the migration has been made to cloud-based accounting there are some opportunities for real time saving and efficiencies to be introduced. The next step on the MTD journey is 1st April 2022, when all VAT-registered businesses must join MTD. This step captures all of the entities with a turnover below £85,000 that had ducked below the parapet for the past two years. HMRC’s portal for accepting VAT Returns will be closing and everyone must seek MTD compliant software. Two years from now, from 6 April 2024, MTD for Income Tax Self-Assessment (ITSA) commences
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for the self employed and landlords with an annual personal income of over £10,000. These individuals will no longer have to submit a self-assessment tax return in respect of their earned income. The annual requirement will become a quarterly one which will be rounded off with a final reckoning called an End of Period Statement. All paperwork and invoices must be maintained within a digital system under this new regime. MTD for partnerships is slated to commence from April 2025, with MTD for corporation tax estimated to emerge the following April, (there could be a staged roll-out according to profit or sales levels, but as yet this is not clear). This means that in the years ahead all businesses will be required to store all accounting records digitally and will have to submit quarterly profit returns with a final end-of-year return to capture and reconcile what has been reported previously. These changes are huge but are intended to make sure that we get our tax right and at the same time find the process to bring efficiencies. There’s a lot of uncertainty about the accuracy levels of the quarterly submissions when an endof-year report will also be filed, but fuller details will emerge over time. What is clear is the fact that manual bookkeeping and lovingly written-up cash books will very soon be things of the past. Make sure to contact your accountant to better understand how MTD is going to change your business in the years ahead.
Peter Bevan Bevan & Co, Chartered Accountants peter@bevan.co.uk
