HMRC’s “Making Tax Digital” plan is fast becoming one of the most talked about changes to the UK tax system this decade. This fundamental change to the way businesses are required to maintain and report their accounting and taxation records is essential to ensuring a robust and growing UK economy. Unfortunately, there are a lot of concerned and confused business owners out there who are unsure as to what these changes mean to them, and when they need to make the changes. This article has been designed to help put your mind at rest and help you identify exactly when you need to make the move to a digital platform.
What is Making Tax Digital?
HM Revenue & Customs goal is to become one of the most digitally advanced tax administrations in the world. They plan to achieve this goal by implementing their “Making Tax Digital” plan (MTD). MTD will see UK businesses make the move to digital record keeping and reporting for accounting and tax. Since there are multiple forms of tax here in the UK, HMRC has had to break down the Making Tax Digital plan into phases.
What are the phases?
- The first step taken by HMRC to digitalise the way UK businesses record and report their financial information began back in April 2012 with the introduction of Real Time Information (RTI) reporting for Pay As You Earn (PAYE) income tax. Now all UK businesses are required to report digitally to HMRC every time they pay someone.
- The second step is to implement phase 1 of the MTD scheme, entitled “Making Tax Digital for VAT”. This phase relates solely to VAT registered businesses from 1 April 2019. VAT registered businesses will have to report their VAT information quarterly to HMRC through an approved digitally compatible software (Xero is an example of such software).
- The third step is to implement phase 2 of the MTD scheme, entitled “Making Tax Digital for Income Tax”. This phase will be aimed at all self employed individuals and business owners from 1 April 2020. HMRC will require quarterly submissions of accounting and tax records through an approved digitally compatible software.
The Current Timeline
| 1 April 2019 | Making Tax Digital for VAT |
| 1 April 2020 | Making Tax Digital for Income Tax (potentially subject to change) |
Making Tax Digital for Income Tax
If you are not a VAT registered business then the Making Tax Digital for VAT deadline of 1 April 2019 does not apply to you. You will not be required to go digital until April 2020 at the very earliest. The date for Making Tax Digital for Income Tax may very well change as the result of changing Government or economic factors.
Conclusion
Right now the answer to the question “when will Making Tax Digital apply to me?” for non-VAT registered businesses is not one that can be answered definitively. All we can say for certain is that going digital is the future, so the sooner you can jump on the bandwagon the better. However, if you would rather not make the move until it is mandatory, we would suggest following our social media timelines for updates on the implementation date.
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