As part of the 2015 Budget, George Osborne announced that the annual self-assessment tax return would be abolished and taxpayers would instead be expected to report their taxes digitally as part of the move to Making Tax Digital (MTD).
Two years on from that announcement, HM Revenue & Customs (HMRC) are moving forward with plans to replace the annual tax return with real time digital updates from taxpayers. As originally envisaged, the swift transition to universal tax filing was motivated by the need to recoup some of the £1.3bn invested in new HMRC technology systems by the expected end of the current Parliament in 2020. This has now been extended after the recent announcement of a general election on 8th June this year meaning that the next Parliament will run to June 2022.
MTD will affect every self-employed individual, landlord and partnership with turnover of more than £10,000 per year.
The Chancellor confirmed that there will be a phased transition to MTD:
- First to comply will be self-employed individuals, partnerships and landlords with turnover in excess of the VAT threshold (currently £83,000) per annum.
- Second will be self-employed individuals, partnerships and landlords with turnover in excess of £10,000.
- Finally, companies will need to comply with MTD.
For individuals and businesses, there’s a range of exceptions in place for those with disabilities and genuine difficulties getting online. Charities are completely exempt from MTD, but any trading companies they operate will be required to comply.
Advantages of MTD
In many ways, MTD will be a step forward for taxpayers. Rather than having to wait until after the end of the tax year to report taxable income for the year, taxpayers will instead provide HMRC with quarterly updates of their tax position over the course of a year.
This should remove the burden of collating the information required to complete the annual tax return. Often taxpayers are dealing with having to find historical information, some of which is nearly two years old.
Another advantage to MTD is that it should make dealing with the final submission required for a tax year much easier than having to complete the annual tax return in full, by the January filing deadline. Finally, as taxpayers will be dealing with their tax information in ‘real time’, MTD may also reduce the possibility of ‘surprise’ tax bills arising.
What happens next?
Despite the potential benefits, there are fears that, certainly initially, the transition to MTD may be difficult for many taxpayers to navigate, which is why we are writing to you now.
At this stage, the main thing is that you are aware that MTD is going to significantly change the way in which you report your taxes over the coming years. We will continue to monitor progress of the proposed changes and we will keep all clients informed of any developments. In addition, we will be liaising with software providers to find the most efficient solution for all of our clients.
If you would like to discuss MTD, or any of the issues raised above further please do not hesitate to contact us.