Making_ Tax_ Digital
In the proposals noted in Hammond’s last budget he introduced making tax digital (MTD) as the new tax system to go live on 6th April 2018. At this time, because of the snap election it has not come into law. It is wishful thinking to believe that it will be scrapped.
The original proposals were that for Sole traders, Partnerships and landlords with turnover above the VAT threshold of £85,000 for accounting periods commencing on or after the 6th April 2018 the system goes live. For entities with turnover below the VAT threshold there has been a delay of one year and for Limited companies there is a delay until April 2020.
What is MTD?
There is still some uncertainty as to what MTD looks like however it is clear that tax payers will each have digital tax accounts and will have to use software Application Programming Interfaces (APIs), to enable digital record keeping with quarterly submissions to HM Revenue and Customs.
Vast parts of the system have yet to be determined and developed by HMRC and as making tax digital is not yet law there is no mandate to force taxpayers to keep digital records at this time.
There will be two types of digital tax accounts; one personal and one business account. All taxpayers in the UK have a personal tax account which will currently show employment income and tax paid and will be able to predict future liabilities on the above.
Taxpayers will be able to administer some taxable benefits such as cars and in time the personal tax account will receive banking and dividend income information directly. It will continue to assess a taxpayers’ liability based on information known and handle all digital correspondence.
Every business in the UK will have a business tax account which will look after the following taxes: PAYE, VAT, Corporation Tax and Business rates from 2022.
These accounts will include all trading businesses and property income.
Income Streams will be spilt into two accounts: –
- Trading and property income will be recorded in the business account.
- Everything else (non-business income) will be recorded in the personal account.
Software will be available to join the two up. The government wants businesses to keep records in a format that this is capable of being transmitted to HMRC using online software.
Making tax digital is due to commence for accounting periods starting on or after 6th April 2018, therefore businesses with the year ended 5th April 2018 will commence tax digital on 6th April 2018, and a business with a 30th September 2018 year end, will commence on 1st October 2018.
It should be noted 5th April and 31st March are not deemed to be the same date as is the case at the present time.
The exemption from keeping digital records is if business income including property income is less than £10,000.
At Silver Levene we are proposing to educate our clients in using Cloud based software which will hopefully enable us to take some of the pain away from this new system.
If you would like further details or have any questions, please contact Peter Grossmark.