Where are we now?
On 13th July the Treasury issued a statement confirming delays to the implementation of the Making Tax Digital project (MTD).
This is welcome news as it provides tax payers and their agents more time to prepare for the new record keeping and reporting requirements and will also enable the pilot, currently being undertaken by HM Revenue & Customs for income tax reporting, to be completed in full, before the requirements become mandatory.
In addition to the delay for income tax reporting, the threshold for which the requirements will be mandatory has been increased from turnover/gross rents of £10,000 per annum to the VAT threshold (currently £85,000 per annum). This change was widely recommended in the responses submitted to the HM Revenue & Customs consultation process, although initially not accepted, this has now been adopted.
Mel Stride, Financial Secretary to the Treasury and Paymaster General said:
"Businesses agree that digitising the tax system is the right direction of travel. However, many have been worried about the scope and pace of reforms.
We have listened very carefully to their concerns and are making changes so that we can bring the tax system into the digital age in a way that is right for all businesses."
It should be noted however that the delay only applies to Income Tax; VAT is moving into the MTD system from April 2019 as previously announced.
HM Revenue & Customs will be starting a pilot of the VAT reporting “by the end of this year, starting with small-scale, private testing, followed by a wider, live pilot starting in Spring 2018.”
It is therefore anticipated that further details of VAT reporting under MTD will be made available later this year or in early 2018.
The new Making Tax Digital Timetable:
- Only businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records and only for VAT purposes. They will only need to do so from April 2019.
- Businesses will not be asked to keep digital records, or to update HMRC quarterly for other taxes until at least April 2020.
- Making Tax Digital will be available on a voluntary basis for the smallest businesses.
For some the deferral in introducing MTD will be good news. However, it shouldn’t deter people considering or embracing the benefits of a move towards digital accounting and record keeping.
Early adopters will not only be better placed once MTD comes into effect, but they will also be able to realise the wider benefits. These include improved tax planning to ensure that only the tax due is paid and the increased ease of financial management and reporting.
We strongly recommend to clients, especially those using paper based reporting systems and even spreadsheets, that they take a look at some of the key cloud accounting packages such as Xero or QuickBooks. These are ideal solutions when it comes to getting to grips with not only Making Tax Digital but also making your business digital.