What we know so far…
As most are aware now through advertisements or word of mouth, HMRC have an incentive called Making Tax Digital that aims to revolutionise tax administration to make the tax system more effective and easier for tax payers to keep on top of their affairs by digitalising the way they manage their affairs. HMRC aim to provide digital tax accounts reforming the current taxation system through the use of tax returns.
HMRC began the process with VAT, making it mandatory to enrol onto this scheme if you exceeded the VAT threshold (£85,000), making tax digital requires the use of digital software to for submission and storage of their accounting records. If you are currently registered under making tax digital, but you would like to file under the old system, you can opt out of making tax digital using your digital tax account.
HMRC publish accounting software that is compatible with making tax digital for VAT, we would recommend checking this list prior to making a decision on what software best suits you or your business, please use this link https://www.tax.service.gov.uk/making-tax-digital-software?_ga=2.219382558.600702812.1581433017-1181539780.1578070171.
There is a question of whether it will become mandatory for all entities with a turnover under £85,000 and this is currently being discussed, but is said to provide problems because most registered entities with turnover under £85,000 are more likely to not use accounting software., therefore making the implementation period more complex.
What to expect next…
From April 2020 HMRC will allow the voluntarily early adoption of income tax under making tax digital, this is through the use of a pilot system until April 2021, at the earliest, when HMRC aim to roll this out as a mandatory obligation. This being said, HMRC are keen to ensure a complete success of making tax digital for VAT prior to rolling out mandatory registration for income tax.
In a similar way to VAT, HMRC are aiming to provide a digital tax account for income tax and this will allow you to send regular income tax updates. HMRC are hoping to get to a stage where digital software is used to submit tax summaries every 3 months and finalise the process by submitting a final declaration by 31st January following the tax year end.
The digital tax account will be able to provide a tax year to date tax calculation to provide easier access for tax payers to monitor their tax affairs. This information will provide tax payers with an option to set up a budget payment plan to make regular payments in advance, giving more flexibility to pay in instalments through weekly or monthly payments.
If you have any questions, please do not hesitate to contact us on 023 8000 1313 or send us an email at info@xebraaccounting.co.uk