22 Sep What does Making Tax Digital mean for your business?
The faces in the Government might have changed but Making Tax Digital, one of former Chancellor George Osborne’s flagship policies, shows no signs of being derailed. It’s been described as the biggest shake-up in tax reporting since online tax returns were first introduced, but what is it and how might it affect your business?
Making Tax Digital – the basics
If you’re not sure what the Making Tax Digital programme is all about, you’re certainly not alone. A recent survey found that 86% of freelancers and micro-business owners in the UK felt they had not been provided with enough information on the scheme.
Essentially, Making Tax Digital, as the name implies, is a plan to make tax reporting in the UK 100% digital, with paper tax returns being phased out entirely. Perhaps more controversially, the scheme will also require quarterly reporting rather than the single annual tax return that most self-employed individuals and small businesses must currently submit.
When will it happen?
The scheme is currently out for consultation but April 2018 has been set as the first date for quarterly reporting to be introduced for income tax and national NIC by traders and businesses who pay income tax on their profits. Quarterly VAT reporting will be added in April 2019 and quarterly corporation tax reporting will go live in 2022. That all assumes that HMRC’s software and IT systems are ready in time and that there are no other unforeseen delays.
What does it mean for my business?
Speaking at the latest HMRC Stakeholder Conference in September, HMRC boss Jon Thompson said: ““I know that some of you have had concerns around Making Tax Digital, including that these changes mean quarterly tax returns for businesses. They don’t. The new digital accounts will integrate all the different information that businesses already provide to HMRC into a simple, streamlined system.”
There’s some scepticism about that, however. There are some benefits to the proposed system but it may mean a lot more work for accountancy firms and businesses preparing their own accounts. Software will also be needed to record and report the data. It’s believed that HMRC will make basic software available for free but those using cloud accountancy and other digital packages might already be ahead of the curve.