Making tax digital
Major changes are being made to the way in which all taxpayers interact with HM Revenue & Customs (HMRC). This is known as "making tax digital" and work has already started with some changes implemented in April 2016, and further changes planned through to completion in 2020.
The Government announced on 13 July 2017 that:
- Only businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records and only for VAT purposes
- They will only need to do so from 2019
- Businesses will not be asked to keep digital records, or to update HMRC quarterly, for other taxes until at least 2020.
This means that businesses with accounting periods that start after 6 April 2019 and which have turnover above the VAT threshold, which is currently £85,000, will begin mandatory Making Tax Digital reporting in 2019/20. Smaller businesses will now be reporting from 2020.
These changes will impact on every individual and business, regardless of size.
We have prepared some frequently asked questions for your information (FAQs), which can be downloaded here.
We will keep this page updated with the latest information from HMRC.
Making Tax Digital case studies
Adam – a pensioner with one let property
Currently, Adam files a self-assessment tax return to declare his rental income. His property income is around £11,000 each year. Adam maintains the records in a paper diary.
Making tax digital will mean that from April 2016, Adam has access to his digital tax account. This will start to pre-populate details of his pension income into his tax return.
From April 2019, Adam will need to maintain details of his property income and expenses on an app or software which can make quarterly submissions to HMRC. These submissions will automatically appear in his digital tax account.
Depending on what other sources of income Adam has, he will still need to file an annual tax return until 2020. By that time, it will be possible to declare all sources of income using his digital account and a tax return will no longer be needed.
Bella - a self-employed beautician who is VAT registered and employs 2 members of staff
Currently, Bella files quarterly VAT returns and an annual self-assessment tax return. She operates a payroll scheme for her employees. She uses spreadsheet based software to maintain her records.
Making tax digital will mean that from April 2016, Bella has access to her digital tax account.
From April 2019, Bella will need to maintain details of her business records on an app or software which can make quarterly submissions to HMRC. These will appear in her digital tax account.
Bella is already making quarterly submissions to HMRC via her VAT returns which she will continue to file online as normal. Her payroll submissions to HMRC will not change but eventually she will be able to do certain things, such as set up new employees, within her digital tax account.
By 2020, all of Bella’s self-assessment, VAT and payroll records will be contained within her digital tax account.
East Anglian Widgets Ltd – a trading company
Currently the company files quarterly VAT returns and an annual corporation tax return. It operates a payroll scheme for its employees.
Making tax digital will mean that from 1 April 2019 the company will need to maintain details of its VAT transactions on an app or software which can make quarterly submissions to HMRC.
By 2020 the company will need to maintain all of its business records on an app or software. Its digital tax account will contain all of its corporation tax, VAT, and payroll records in one place.
The company will have the option to pay all of its taxes (corporation tax, VAT etc) in smaller more regular payments. It will also be possible to offset a refund of one type of tax against another.