Making Tax Digital: The Timetable For 2019
What is ‘Making Tax Digital’?
Very few people enjoy getting their tax affairs in order. Whether you’re a hard working self-employed professional, a landlord or a business with a network of client finances to manage, keeping on top of your corporate taxes is far from easy and mistakes are estimated to cost the Exchequer over £9 billion a year.
For this reason, the Making Tax Digital initiative aims to reduce tax loss as a whole by improving accuracy and reducing avoidable errors such as mistakes in transposition. HMRC is streamlining the process of tax administration to make it swifter and more effective for individuals, business and the government.
The Making Tax Digital initiative aims to make the United Kingdom’s tax system one of the most digitally advanced in the world by overhauling its systems. Traditional tax returns are to be replaced by digital accounts – a comparable process to managing your bank account online.
What work has already been done to make tax digital?
Although Making Tax Digital is not yet in full effect, some steps have already been taken in order to digitise the process of tax administration and simplify the process of tax returns, preventing errors and aiding those businesses who are currently paying too much tax.
An 11-part draft of the rules for the system – such as what HMRC is to receive from users and the rules regarding electronic communication – have been established since September 2017, when the primary legislation on tax and VAT was first released.
The finalised rules of the Making Tax Digital initiative were released to the public in July 2018 and by October of the same year a pilot scheme for 500,000 businesses with a proven track record of being up-to-date with their tax returns and VAT had been launched.
These initial 500,000 businesses did not:
- Trade with the EU
- Have a base overseas
- Submit annually
- Make payments on account
- Use the VAT Flat Rate Scheme
In late 2018, HMRC began testing the Making Tax Digital initiative with customers and partnerships that trade with the EU.
What is planned for Making Tax Digital in 2019?
As of early 2019, Making Tax Digital will be open to a range of different people and bodies, including those who are:
- Not up to date with their VAT
- Making use of the Flat Rate Scheme
- Newly registered for VAT, provided that they have not yet submitted a VAT return
- Trading with the EU
As of 1 April 2019 Making Tax Digital (MTD) will be mandatory for all VAT returns for VAT quarters commencing after 1 April 2019. Therefore any business filing for the quarter ended 30 June 2019 (filing deadline of 7 August 2019) will have to use a digital platform , unless they have been previously deferred or have an annual turnover that is or exceeds £85,000.
VAT registered business that are using suitably HMRC approved accounting software will be able to file directly using their software. Business that do not have MTD ready software or compile their VAT returns using Excel will be able to take advantage of a year’s transitional arrangement by using suitably approved bridging software. Manual records will not be acceptable.
Customers and groups that are entitled to defer the April 2019 start date include:
- ‘Not for profit’ organisations that are not set up as a company
- VAT divisions
- DAT groups
- Public sector entities for whom it is necessary to provide additional information on their VAT return, including:
a) Government departments
b) NHS trusts
c) Local authorities
d) Public corporations
e) Traders based overseas
f) Those who must make payments on account and annual accounting schemes
The cut off point for those who have deferred is October 2019, at which point the initiative becomes mandatory for all businesses.