Who will be affected and when do the changes come into force?
The Making Tax Digital requirements will apply to all VAT registered businesses for their VAT obligations from April 2019 where their turnovers are in excess of the VAT threshold (currently £85,000). There is no change to the previous assessment that Making Tax Digital is not expected to impact on family formation, stability or breakdown.
What does Making Tax Digital mean for businesses?
The government recognises that the majority of businesses want to get their tax right, but the latest tax gap figures published by HM Revenue and Customs (HMRC) show that too many otherwise compliant businesses find this hard, even some who use an agent to help them. Errors and mistakes, which contribute to this tax gap, are found in every sector with over £9 billion lost annually in tax.
Making Tax Digital will provide a more modern, digital service which will help businesses get their tax right, with technology making it easier for them to do so. We are confident that businesses will be able to use Making Tax Digital successfully, with the reforms making it easier for businesses to get their tax right the first time, not only reducing the tax gap, but also reducing the cost, uncertainty and worry that businesses face when HMRC is forced to intervene to put things right.
For Income Tax, businesses (including self-employed and landlords) will be able to keep records of their income and expenditure digitally, and send summary updates quarterly to HMRC from their software (or app) from April 2018 if they choose to do so.
From April 2019, VAT registered businesses (including self-employed and landlords) with turnover above the VAT registration threshold (currently £85,000) will have to:
•keep their records digitally (for VAT purposes only)
•provide their VAT return information to HMRC through Making Tax Digital compatible software
HMRC recognises that the business population that will be affected by the mandatory changes from April 2019 is diverse. Making Tax Digital will be available on a voluntary basis to other businesses, for VAT, Income Tax and National Insurance contributions.
These digital reforms will bring the tax system in line with what businesses and individuals now expect from other online service providers: a modern digital experience that helps them get their tax right first time. HMRC anticipates that many businesses that are not mandated from April 2019 will choose to move to the new service.
Keeping records digitally will result in more timely and accurate record-keeping, helping to prevent errors associated with manual processes. Quarterly updates direct from records will help prevent errors that can happen when businesses undertake manual calculations or transcribe information from one format into another.
The nudges and prompts that will be incorporated into the Making Tax Digital compatible software developed by third party software providers will help eliminate common errors, giving businesses greater certainty that they’ve got their tax right first time, reducing the need for unwelcome compliance interventions which are expensive and burdensome for both HMRC and its customers.
Whether part of the mandated VAT population or participating voluntarily, we expect Making Tax Digital to deliver benefits for businesses. Software will help businesses to stay on top of their record keeping, allowing them and those who represent them to understand better how their business is performing. Key benefits include:
•always knowing where you stand when it comes to tax
•having access to tax information online in a single place
•being able to work online collaboratively with an agent
•being able to plan and budget more effectively