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Making Tax Digital

People are embracing the digital revolution. From banking to online grocery shopping, millions of businesses are benefiting from the expediency and simplicity of digital services - and the tax system is no exception.

By 2020 HMRC will have moved to a fully digital tax process, where bureaucratic form-filling will be eradicated, unnecessary time delays eliminated and taxpayers will have access to full digital accounts.

The MTD project has four key foundations:

  • Simplifying tax
  • Keeping tax records all in one place
  • Making tax digital for businesses
  • Making tax digital for individual tax payers

Simplifying tax

Currently the information that HMRC receives from a range of sources is held on separate stand-alone systems. This often results in taxpayers being required to submit information that is already held, an unnecessary burden for taxpayers and inefficient for HMRC. The MTD scheme aims to amalgamate current internal systems and populate digital tax accounts with the information it holds.

The new changes also aim to make it easier to pay tax. A new system of online billing will mean that anybody who owes tax will be able to calculate and pay what is due without the need to complete a self-assessment tax return as they do now.

Making tax digital for businesses

This change greatly affects small business, the self-employed and landlords, as it will enable them to keep track of their tax digitally and update HMRC quarterly via their online account. The requirement to update systems quarterly will be phased in from 2018-2020, to give businesses time to prepare and adapt.

This digital change will allow companies to keep a ‘real-time’ account of their tax and what is owed. Various software packages and digital tools will be available - meaning all information can be uploaded directly via your laptop and even your smartphone.

Businesses and landlords with a turnover of less than £10,000 will be exempt from the requirement to update HRMC quarterly and to keep digital records – this is also the case for charities and community sports clubs.

Individual tax payers

Currently 86% of self-assessment tax returns are made online and personal digital accounts have been introduced this year to provide a simple, secure and customised service. Real-time PAYE data has also been introduced to tackle end-of-year under and overpayments and HMRC plan to further develop this - making it easier to check income, benefits in kind and personal allowances each month, to make tax adjustments and help avoid mistakes altogether.

Tax in one place

Currently taxpayers have to contact various areas of HRMC to find out their overall current financial position. This is all set to change, with the introduction of a modern digital system that will provide a single personalised view of your tax position across all your liabilities including VAT, National Insurance Corporation Tax, student loans and more.

Paying tax will also be simplified as a single transaction. This will allow taxpayers to off-set any tax owned on one liability against an overpayment on another. However, there will be rules governing when and where money can be re-allocated between different taxes or loans – and HMRC are working with stakeholders to establish how these rules will be outlined.

We will be bringing you more on the topic of making tax digital as the scheme progresses.  If you have any questions on how these changes may affect your business, please contact us here.