BUSINESS IN FOCUS
mAKINg tAx dIgItAl
AS PARt of thE 2015 BUdgEt thE govERNmENt SEt oUt thE vISIoN foR A tRANSfoRmEd tAx SYStEm ANd IN dEcEmBER 2015 lAUNchEd thE mAKINg tAx dIgItAl RoAdmAP WhIch SEtS oUt hoW thIS WoUld BE AchIEvEd, mAKINg hm REvENUE & cUStomS (hmRc) INto oNE of thE moSt dIgItAllY-AdvANcEd tAx AdmINIStRAtIoNS IN thE WoRld BY 2020.
S
ince April 2016, all of hmRc's individual customers have had access to their own digital tax
account. this allows individuals to, among other things, check their employment income, view their National Insurance record and check their State Pension forecast.
the digital account is personalised, secure and is being developed all the time so that the full range of tax services will be available for everyone to use by 2020.
on 15 August 2016, hmRc published six consultation documents on making tax digital (mtd). these consultations set out detailed plans on how hmRc propose to fundamentally change the method by which taxpayers send information to hmRc.
hmRc has announced it will publish its response to the consultations in January 2017 together with provisions to implement the changes.
hEAdlINE chANgES mtd will impose a new quarterly filing no later than 30 days after the quarter end for businesses and landlords with income of £10,000 per annum and above (although this threshold may change through the consultation process).
the first phase of mtd affects small unincorporated businesses and landlords from April 2018, the second phase is for vAt from April 2019 and the third phase will affect companies from April 2020.
mtd will also require businesses to keep their records using digital tools,
62 - PhARmAcY IN focUS
this being software or apps which will be used for submitting the quarterly reports to hmRc known as ‘updates’.
hmRc have confirmed that these updates will include summary data only in relation to the businesses income and expenditure for the relevant quarter and will not include details of all the transactions that occurred in that quarter.
formatting built into the digital tools will automatically categorise the income and expenditure into the format required by hmRc. hmRc have also confirmed free software will be available for businesses with the most straightforward affairs.
currently Excel is not a digital tool and therefore will not be an option for making quarterly updates.
dEAth of thE tAx REtURN? Although hmRc say that the annual tax return will go, businesses and landlords will still need to prepare year end accounts in order to reconcile their four quarterly updates and claim various reliefs and make accounting adjustments for tax purposes.
they will be required to file a ‘year- end declaration’, instead of a tax return, within nine months of their accounting period end.
the key difference between the year- end declaration and a tax return, other than in name, appears to be that hmRc will pre-populate some of the return figures, for example bank interest, income from employment, pensions, etc.
for the self-employed, it is assumed that hmRc might attempt to pre- populate the year-end declaration with data submitted in the quarterly update figures.
this is unlikely just yet and businesses will still need to reconcile their quarterly updates to their year-end accounts and thus all must reconcile to the year-end declaration.
All taxpayers will need to check that pre-populated data is correct.
cloSINg NotE the tax system is set to be transformed to fit the digital age we now live in and will look and feel very different by 2020, with businesses being able to see, through their digital accounts, a real-time view of their tax and a calculation of the tax due.
Unfortunately mtd will create some challenges including:
• the mandatory proposals will substantially increase administrative burdens on businesses regarding tax and regulatory compliance.
• mandatory quarterly reporting won’t suit many businesses given that these businesses still compile
their records annually and in some cases manually.
• A lack of It skills and digital tools will require training and increased expenditure at a time when many businesses are under increasing pressure to lower costs.
mtd is something we’re all going to hear a lot more about in the coming months especially with hmRc publishing its response to the initial mtd consultations in January 2017, having received over 3,000 responses from customers relating to the mtd consultations.
If any of the points noted above affect you or somebody you know please speak to Steven mcvitty for independent professional advice.
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