Transitioning to a new digital tax system
Making Tax Digital is a government initiative that will transform the tax system for individuals and businesses across the UK – in an effort to improve efficiency, effectiveness and ease of tax compliance.
It’s designed to update tax for the digital age and will move all business and personal taxation online by the year 2020. MTD means an end to tax returns – instead, businesses and individuals will need to file a quarterly summary of income and expenditure, filing them directly from accounting software in a suitable format.
Making Tax Digital will impact on different businesses and individuals at different times:
April 2018 – the pilot scheme begins
April 2019 – quarterly VAT returns to be filed online by VAT registered businesses
April 2020 – all other taxes, including income tax and corporation tax to enter the system
In practice, this means that all VAT registered businesses will need to be ready to switch over to the new system by April 2019 at the latest, whilst sole traders, businesses below the VAT threshold and unincorporated landlords will need to be ready by April 2020.
What this means
In practice – this will be a big change for many businesses and self-employed individuals who are required to file tax returns.
If you haven’t done so already, you will have to switch to a dedicated accountancy platform (like Xero) that links directly to the new digital tax system, rather than keeping paper or manual books. Instead of filling in a yearly tax return, you will need to provide up to date information about your financial records.