By Hayley Robins, Senior Accountant at Hive Business
In the March 2015 Budget, HMRC announced its Making Tax Digital (MTD) initiative which will, in their words: “make HMRC into one of the world’s most digitally-advanced tax administrations in the world by 2020”. But since then they’ve not provided much detail on how this new initiative will work.
However, HMRC have just published consultation documents which set out how they see their new system working in more detail and allows accountants and tax advisers to have their say on the proposed system before it is finalised.
This consultation only applies to sole traders and partnership (but also property businesses); there will be a separate consultation later this year to cover limited companies and directors.
MTD will only apply once your annual income exceeds £10k and businesses with an annual income of not far above that level (and under a threshold yet to be determined) may, under the proposals, have an extra year to comply with the MTD rules.
Making Tax Digital will not require businesses to file four tax returns every year. Instead, businesses will send summary data to HMRC about their business each quarter, or more often if the business prefers. The summary data will consist of total income and total expenditure, with the expenditure broken down into categories for example ‘Rent’ and ‘Subscriptions’. You will need to send this information from your bookkeeping software (e.g. Xero). HMRC have confirmed that they will not be providing their own software.
You will then need to file an ‘End of Year Declaration’ 9 months after your financial year end which will finalise your figures for the year.
MTD is planned to start in April 2018, but for the smallest businesses that come within its scope, a year’s extension has been suggested. Again, the threshold for what “smallest businesses” means has yet to be set so we’ll need to wait for more details.
HMRC is not planning to change its current payment dates but businesses may have the right to make ‘voluntary payments’ towards their tax liabilities.
HMRC have said “Under Pay As You Go, the customer will decide how often and what amount they want to pay. Payment will not have to be at any fixed time, or at regular intervals; the customer will retain control and choice, so they feel confident that they have made the right decision for their circumstances, and have the opportunity to amend their choices if circumstances change”
It may also be possible for businesses to claim a repayment of these voluntary payments.
HMRC are proposing to put an end to the current penalty system and introduce a points system (much like the driving licence penalty points system). Penalties would only be charged once points reach a set level. This level is suggested to be 4 points and these points would be wiped 24 months after the last point was incurred.
This is only a consultation document so the above information is by no means final. Accountants and Tax Advisers will now give their thoughts on the system; the consultation period will run until 7 November 2016.
After this, HMRC will most likely revise their plans to accommodate the feedback received so we will keep you updated on all the latest changes to Making Tax Digital.
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