Making Tax Digital: What Will It Mean For You

April 10, 2017

Wills and Probate

Making Tax Digital: What Will It Mean For You

Making Tax Digital is a government initiative that sets out a bold vision for ‘a transformed tax system and the end of the tax return’ by 2020.

What will it mean for you?
When I first prepared tax returns, there were just a couple of pages to contend with and for missing information you could enter “Per accounts”,  “To follow”, “As reported” or “Under £10.00” on the return form.  At that time, a form could actually be sent to HM Inspector of Taxes without any figures.   

If the Inland Revenue did not receive the information they would issue a precept and list the case for a hearing before the General Commissioners.

Then came Self-Assessment which did away with time honoured assessments, appeals and the requirement to agree matters under S54 TMA 1970.  

Now it is all change again and HMRC expects to make more use of technology so that tax returns will soon be a thing of the past. 

So what do you need to know about the changing demands of HMRC and the increased use of technology? 

What is Making Tax Digital (‘MTD’) all about?
In the Budget proposals for 2015, the government set out their plans for a modernized tax system and the end of filing tax returns each year.  At that time the government announced it would improve the service it provides to tax payers through a £1.3 billion investment which would eventually transform HMRC into one of the most digitally advanced tax administrations in the world.

Making Tax Digital is a vision to make tax administration more effective, more efficient and easier for taxpayers, through the implementation of a fully digital tax system.

The roll-out of the initiative is well under way.  Every small business owner and individual taxpayer will soon have access to a digital account that they can use to check their records and manage their affairs more easily with HM Revenue & Customs.

Changes are planned in the coming months and many software providers are actively engaging with HM Revenue & Customs to shape the entire process and simplify the shift for small businesses.

A pilot scheme to implement Making Tax Digital is scheduled to begin in April 2017, with a phased rollout to unincorporated businesses starting in April 2018 and full implementation of the initiative expected by 2020.  Businesses with a turnover between the minimum threshold of £10,000 and the VAT threshold – currently £85,000 – will be given until April 2019 to comply.  By this time you should see the following major changes to the way you manage and report your business taxes:

  • Through your digital account you will be presented with a complete picture of the tax affairs of your business and you will be able to manage all of your liabilities at the same time, in the same place.
  • HMRC will collect and process information affecting tax in as close to real time as possible. This should prevent any tax due or repayments owed from building up.
  • You will no longer have to wait until the end of the tax year to know how much tax you have to pay.

It is proposed the HMRC will also share information that is held electronically to assist with the digital filing by taxpayers.  This may include information on pay for the year or bank and building society interest details for instance.

Who is affected by Making Tax Digital?
The changes outlined in the Making Tax Digital initiative will apply to a wide range of taxpayers, including most businesses, self-employed people and landlords, as well as individual taxpayers.  However, HMRC has confirmed that it will legislate for an exemption “for taxpayers who cannot engage digitally” and that the legislation will be based upon the existing VAT online filing exemptions.  HMRC has also confirmed that there will be a minimum threshold of £10,000 annual sales at which ‘MTD’ will kick in.

How will the initiative be implemented?
As Making Tax Digital is rolled out to the general public, a number of changes will be implemented. A timescale of the developments that are most relevant to business owners is set out below:


April 2017

Start of pilot scheme.
Digital tax accounts to be created so that taxpayers have an overview of their tax liabilities in one place.

April 2018

Businesses, self-employed people and landlords with turnover above the VAT threshold – currently £85,000 – start updating HMRC quarterly for Income Tax and National Insurance obligations through accounting software.

April 2019

Businesses with a turnover between the minimum threshold (£10,000) and the VAT threshold (£85,000) start updating HMRC quarterly for Income Tax and National Insurance obligations through their accounting software.

MTD will also apply for VAT figures and returns.

April 2020

Most businesses, self-employed people and landlords start updating HMRC quarterly, will also include tax  obligations for companies

For advice and assistance with any tax related matter, please call Patrick on 01865 244661.