Making Tax Digital
On 15th August 2016 the Government released six consultation documents with the intention of making Britain one of the most digitally-advanced tax administrations in the world by 2020. The consultation period will run to 7th November 2016.
The areas covered are: -
- An overview for small business, the self-employed and smaller landlords
- Bringing business tax into the digital age
- Business Income Tax: Simplifying tax for unincorporated businesses
- Simplified cash basis for unincorporated property businesses
- Voluntary pay as you go
- Tax administration
The effect of all the above changes is set out in transforming the tax system through the better use of information
The vision for the new tax system sees individuals and businesses having access to their own secure digital tax account and the ability to interact with HMRC digitally. By 2020, the government looks to enable all business and individual taxpayers to register, file, pay and update their information at any time via their account.
HMRC is aiming to deliver the end of the tax return by 2020.
HMRC’s digital system will collect and process information in as close to real-time as possible, with the view to provide greater certainty and a more complete view of tax affairs. Tax payers will be made aware of changes to, for example their PAYE code, by text messages.
HMRC is aiming to join up its internal systems to populate digital tax accounts with the information it already holds. This should enable taxpayers who complete their return online to find some fields already completed. A new system of online billing will also mean that anyone who owes tax will be able to see the calculations and pay what they owe without needing to complete a self-assessment tax return.
The government anticipates that some individuals might struggle with the new procedures more than others. The consultation will explore how transition support will be provided, whether this is financial, additional tax relief or practical online sessions.
Making Tax Digital for Businesses
By 2020, businesses, self-employed people and landlords will be required to keep track of their tax affairs digitally and update HMRC at least quarterly via their digital accounts. It is likely all businesses will use a cloud-based accounting system in order to enable all receipts to be electronically kept.
Businesses will be prompted to send updates to HMRC; these should provide more certainty over tax bills and allow businesses to improve their cash flow management. Taxpayers will have one month after each quarter to update their tax accounts, and they will have nine months after their year-end to finalise their accounts. Accounts will continue to be drawn up using GAAP; those businesses with a turnover of less than £83,000 are currently exempt, and this cash accounting cap might be increased. Corporation tax returns will require filing within 9 months of the year end (currently 12 months).
Making Tax Digital for Individual Taxpayers
Individual taxpayers were given access to their own digital tax account in April 2016 where they can view their liabilities and its composition. HMRC will prompt and advise through secure messaging accounts, as well as providing digital support. HMRC aims to work in almost real-time, with individuals able to alter their information for one month after each quarter.
Partnerships will see dramatic change; the new system will require one partner to submit on behalf of all the other partners. This will also apply to rental property businesses, particularly those run by spouses. Partnerships which have a turnover of less than £10,000 will be exempt from the Making Tax Digital requirements, but should the partners wish, they can join voluntarily.
Taxpayers will be required to ‘approve’ their digital tax account within nine months of the end of the tax year (currently ten months).
For those tax payers who are late either filing their quarterly or annual return or paying tax a new harsher penalty regime is being proposed.
Tax in One Place
At present, taxpayers have to contact a number of different sources to calculate their financial positions (VAT, Corporation Tax etc.) and the government’s vision for Making Tax Digital is a single, personalised view of the overall tax position across all their liabilities.
This will be furthered once businesses are keeping digital records and updating to HMRC regularly, there will be the opportunity to make voluntary tax payments throughout the year. Some businesses might voluntarily look to pay more regular amounts towards their liabilities to help cash flow. There is a consultation into how an individual might make or manage the voluntary payments and how overpayments will be repaid.
Talk to Us
This is a fundamental change to the tax system and Myers Clark can help with the following:
- Registering and using the new system at the right time.
- Acting as your agent in respect of all taxes.
- Managing your digital tax account and ensuring it accurately reflects all your tax affairs.
- Taking over your business and rental property accounting and filing quarterly on your behalf. You will have online access to your accounts at all times and an experienced accountant to talk to.
- Advising when tax is payable ensuring you pay what is due at the right time.
- Error correction. As data will be posted into your tax account from a number of sources – e.g. your employer, your bank or building society, HMRC etc. it is expected there will be errors and Myers Clark can ensure these are promptly identified and corrected.
If you have any concerns or queries please contact Robert Marsden at Myers Clark firstname.lastname@example.org or call 01923 224411