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. From April 2019 some businesses have already been required to use MTD for filing their VAT returns if their turnover is above £85,000 annually. From 2021 at the earliest Making Tax Digital is expected to be made mandatory for income tax and corporation tax reporting by some businesses and landlords. MTD for VAT may also be extended to all VAT registered businesses.
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 2019 – quarterly VAT returns to be filed online by VAT registered businesses turning over more than £85,000 per annum
April 2021 at the earliest– all other taxes, including income tax and corporation tax expected to enter the system
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.