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News // 23/10/2016

Making tax digital

Making tax digital

So you may have heard or read in the press about HMRC’s proposal for ‘Making Tax Digital’ and the death of the tax return. But what does this actually mean, will it affect you and can you influence it?

Andrew England - Menzies AccountantThis is important as it will affect a significant proportion of the population and there is a one off chance to influence the decision process as HMRC are currently running a consultation in which we will be representing our client’s interests and we would welcome your input by completing our brief survey.

Take our survey


Why go Digital?

digital-tax1We are now fundamentally a digital society with banking, shopping and entertainment all being done online.

The latest internet access survey shows 89% of households have internet access with 82% of adults accessing it almost daily and 70% of adults accessing the internet ‘on the go’ using a mobile phone or smartphone.

The government has looked at digital trends and assessed that it is inevitable that tax will move into the digital era in the next decade or two and decided to embrace this with an eye on making the UK’s tax system more efficient, easier to understand and more effective.

Who will be affected by making tax digital?

The first group of individuals HMRC are looking to bring into this are unincorporated traders and unincorporated landlords.

Subject to consultation it is proposed that where total turnover and gross rental income together exceed £10,000 accounting records will need to be kept digitally.


What will making tax digital mean?

digital-tax2Individuals and businesses will be required to report their income and expenses to HMRC at a minimum on a quarterly basis (although if you wish to update more frequently HMRC have said you will be able to do this!), and with an annual final declaration.

This will be recorded in a taxpayer’s digital account with an estimate of the tax payable based on these figures allowing an individual to plan their cashflow.

Does this mean 4 tax returns a year?

No – The quarterly submissions are not binding and HMRC recognise that various adjustments (e.g. stock / capital allowances) will only be made at the year end so the actual tax liability will only be based on the end of year return.

What are the potential benefits to me?

The quarterly submissions will generate an estimate of the tax bill, allowing an individual or business to plan their cashflow in a timely fashion.

A business will have a single Digital Account and will be able to see all their taxes (Income tax, PAYE & VAT) in one place and be able to transfer an overpayment of one tax against the liability of another with a few clicks of a button.


When will this be introduced?

digital-tax3The proposal is to bring this in from April 2018 although representations are being made to defer this.

Currently, partnerships, self-employed persons and landlords will have their first quarterly updates being due for submission from July 2018 to September 2018.

What will I need to be able to comply?

If you are a business (sole trade or partnership) or a landlord you will require some form of software (this will be either for a computer or via an app for your smart phone), on which to keep your accounting records and / or submit your quarterly statement of income and expenses.

HMRC have stated that they will not be providing any free software themselves although they have confirmed that they will ensure that there is free software for the very simplest of cases.

Are there any exclusions?

Only to those that are digitally excluded.

Can we influence the policy?

Yes – HMRC have issued consultation documents on their proposals (and these are not final) and Menzies is going to feedback with the aim to influence government policy on these and we would like your views.

We have produced a survey with a few questions covering the areas HMRC are keen to get feedback on and we would be grateful if you would complete the survey so we can represent your views with HMRC.

Take our survey
For more information on HMRC’s plan on making corporate tax digital, please contact Menzies Partner Andrew England on 01372 366168 or email aengland@menzies.co.uk.

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