01 Feb Are We A Step Closer to Making Tax Digital
News has emerged from HMRC this week on how Making Tax Digital will benefit the self-employed and landlords with their plan to modernise our tax system. The idea behind Making Tax Digital (MTD) is to help millions of businesses get their tax bills right first time, without the need for an annual tax return.
So what’s new?
- Businesses will now be able to continue to use spreadsheets to record income and expenditure, which they can then link to software to automatically generate and send their updates to HMRC. This was something that had been a popular request by small businesses and something that the Treasury Select Committee had called for.
- Free software will be available to the majority of the smallest businesses.
- Businesses that are unable to go digital will not have MTD imposed on them.
- All self-employed businesses and landlords with a turnover under £10,000 a year will not have to keep their records digitally or make quarterly updates but can do so if they wish. This is quite meaningless, as these people will not be liable to tax anyway as their personal allowance will extinguish their income.
- The option to account for income and expenditure on a simple ‘cash in, cash out basis’ will be extended, helping an extra 2.5 million self-employed businesses and unincorporated landlords.
- Taxpayers will have at least 12 months to become familiar with the changes before any late submission penalties will be applied.
- HMRC will consult again in the spring on a new penalty model.
- HMRC will pilot the digital systems with hundreds of thousands of businesses before rolling them out to ensure the software is user-friendly, and to give businesses and landlords time to prepare and adapt.
The general idea is that the self-employed and landlords will be able to keep track of their tax affairs digitally and update HMRC quarterly by 2020, meaning the tax return as we now it will become obsolete. Their hope is that this will eradicate errors and help businesses get their tax right first time which should not only reduce the cost but also uncertainty and worry that businesses face when HMRC investigate them.
Their hope is that this will eradicate errors and help businesses get their tax right first time which should not only reduce costs, but also uncertainty and worry that businesses face when HMRC investigate them.