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Making Tax Digital

Published Thursday, April 20, 2017

In December 2015 HM Revenue & Customs published Making Tax Digital - its strategy to implement a new system of digital tax accounts to be used by businesses, the self-employed and landlords. Following a consultation exercise last year, in the 2017 Budget the Government confirmed its plans to roll-out digital tax returns from next April. This note discusses the background to this reform.

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In December 2015 HM Revenue & Customs published Making Tax Digital - its strategy to implement a new system of digital tax accounts to be used by businesses, the self-employed and landlords. The Government proposed that the new system would be rolled out over two years, first applying to income tax returns (in 2018), and then extended to VAT (in 2019) and corporation tax (in 2020).[1]  Initially the Government anticipated that in the first phase from April 2018 businesses, self-employed people and landlords would be required to use digital accounts, updating HMRC on a quarterly basis; employees and pensioners would be exempt, unless they had secondary incomes of more than £10,000 per year from self-employment or property.

Following a consultation exercise last year, in the 2017 Budget the Government confirmed its plans to roll-out digital tax returns from next April. To begin with unincorporated businesses and landlords would have to file income tax returns this way, if their annual turnover exceeded the VAT registration threshold – the point at which traders are requirement to account for VAT – although those with a turnover below this threshold would have another year to prepare. Businesses, self-employed people and landlords with turnovers under £10,000 would be exempt from these requirements.[2]

Further information was given in a tax information & impact note alongside the Budget report. One concern that many constituents have raised about online tax is the position of taxpayers who may be digitally excluded, or have limited experience of using computers for their financial record keeping – and this is addressed in this note as follows:

  • The government recognises that many people with disabilities use digital technology and are able to interact online using assistive technology. HMRC will ensure that available software will be compatible with forms of assistive technology and that those that are willing to operate Making Tax Digital for Business (MTDfB) are able to do so.
  • Ofcom’s 2016 statistics indicate that 59% of homes now own a tablet device and 71% of UK adults now have a smartphone. 97% of small and medium-sized businesses have access to online services. Although it is expected that the digitally excluded population will be relatively small, some of the segments impacted by the changes may be disproportionately represented within this population.
  • Individuals with protected characteristics under the Equality Act who fall within the current legislative definitions of ‘digitally excluded’ will be exempted from the digital record-keeping and update requirements and HMRC will provide non-digital alternative channels to them …
  • The government recognises by their very make-up that [the group of small and micro businesses] includes businesses which are likely to be more affected by one-off transitional costs and digital capability issues, and may therefore find it more difficult to move to the new digital requirements.
  • In the consultation the government said that it wanted to consult further on financial support to help some businesses make the transition to the new arrangements. It sought views on the support required and what form this should take ...
  • The number of businesses and individuals affected and the impacts on them will be reviewed throughout 2017 as large scale piloting takes place in advance of MTDfB’s mandatory introduction.[3]

The first tranche of legislation to establish Making Tax Digital is included in the Finance Bill 2017  - specifically clauses 120-122 of the Bill (details are in the Explanatory Notes to the Bill).

Notes : 

[1]     HMRC, Making Tax Digital – the roadmap, December 2015 (see, Timeline, at pp11-12)    

[2]     Budget 2017, HC 1025, March 2017 para 3.39 The report also confirmed that the VAT registration threshold would be increased from £83,000 to £85,000 from 1 April 2017 (para 3.36).

[3]     HMRC, Making Tax Digital for business – tax information & impact note, March 2017

Commons Briefing papers CBP-7949

Author: Antony Seely

Topic: Taxation

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