Making Tax Digital – A New Time Line

Making Tax Digital (MTD) was announced as the new initiative by HMRC to revolutionize and modernize the tax system in the UK.

MTD centres around keeping digital financial records that can then be accessed by software to calculate and submit taxes through to HMRC. The goal is that there will be direct ‘digital link’ between the financial record and the software used to calculate and submit the records and therefore ensuring an accuracy in the figures being generated.

With initial teething problems, MTD for VAT started back in April 2019, and as a result of various delays around Brexit & COVID-19, it still has not sailed out of its ‘soft-landing’ period.

On 21st July 2020 the Treasury published a 10-year plan to modernize the UK’s tax system which outlines a blueprint for the transition of UK’s tax system into the digital age.

MTD for VAT

Introduced April 2019, MTD for VAT had a soft-landing period where the rules for this ‘digital-link’ were relaxed.  Prior to COVID-19, April 2020 was the date stipulated where all digital links were to be in place for submissions.

As a direct consequence of COVID-19, it has been now been stated that as of 1st April 2021, the ‘soft-landing’ period comes to an end and all VAT registered businesses submitting VAT returns will need to ensure they have these digital links in place for their submissions.

Furthermore, from April 2022, MTD for VAT will apply to all VAT registered businesses and not just those that have a turnover greater than the VAT threshold.

MTD for Income Tax

The 10-year plan targets 6th April 2023 for self-employed businesses and unincorporated landlords to begin reporting quarterly their financial data through MTD software, and therefore having to maintain updated digital records.

MTD for Income Tax will be mandated for all self-employed and unincorporated landlords with incomes exceeding £10,000 per year.

It is estimated that around four million unincorporated businesses and landlords with annual turnover exceeding £10,000 per year will be drawn into MTD and therefore required to keep digital records of their business finances and submit business financial information at least quarterly to HMRC using a 3rd party MTD compliant software.

The financial information required digitally (at the very least) every 3-months:

  • Income & expenses (sales and expense invoices/receipts)
  • Allowances & Adjustments
  • A confirmation of the sources of income for the business with an End of Period Statement (EOPS)

In addition, if there are any other; sources of income, reliefs and allowance, capital gains, etc, they will need to be submitted (at the very least) annually, relating to the tax year.

However, the roll-out may be different to that initially envisaged as HMRC says it will draw on everything that has been learned from the implementation of the VAT service to date in their evaluation report.

MTD for Corporation Tax

In the report by the Treasury they announced that they will begin consultation on MTD for Corporation Tax in the Autumn of 2020.

 

Change can be daunting, but rest assured that at Taxfile we have been preparing for MTD for over 3-years now and have successfully transitioned all our VAT clients to MTD and have been successfully calculating and submitting MTD compliant VAT returns for well over a year.

We will be supporting all our self-employed customers and landlords through this transition with our services and will keep you updated as announcements are made.

If you have any questions about this, please do not hesitate to contact us on 020 8761 8000.

George Osborne

Highlights from the Chancellor’s Budget, 18 March 2015

Along with some encouraging news about the UK economy, some interesting new measures were announced in the Chancellor’s Budget yesterday and below we highlight those which we feel will directly impact the majority of UK taxpayers:

  • As widely forecast, the tax-free allowance will increase. The amount people can earn before paying tax will rise to £10,800 from 2016-17 and then to £11,000 from 2017-18. At the same points in time, higher earners will also receive a two stage increase to the threshold at which they start to pay a 40% rate of tax, with the threshold increasing to £43,300 by 2017-18.
  • The Chancellor also announced a brand new Personal Savings Allowance whereby the first £1,000 of interest (£500 for higher rate taxpayers) will be tax tree. This new allowance will kick in from April 2016 and will take 95% of taxpayers out of savings tax completely. (Fact Sheet available here).
  • Another new scheme announced was the introduction of a new ‘Help to Buy ISA’ aimed at prospective first time buyers. This fairly generous scheme means that the Government will chip in up to £50 extra per month (up to a ceiling of £3,000) when an eligible saver saves up to £200 per month towards their first home. (Fact Sheet available here).
  • In another ISA reform, savers will now be able to withdraw money from a new Flexible ISA and deposit it back later in the same financial year without losing any of their usual ISA tax benefits. £15,240 will be able to be put into this re-styled savings vehicle. Read more

(Time Sensitive): Tax Year End Changes for Pension Allowances

The start of the new Tax Year on 6 April 2014 – just 6½ weeks away at time of writing – will see two very important changes in relation to pensions allowances.

The first change will affect the ‘Annual Allowance’ (or ‘AA’) which is the annual limit on pension savings attracting tax relief. This limit will be reduced from £50k to £40k (having been as high as £255k back in 2010/11) and includes contributions made by anyone into your pension whether that’s you or your employer. Should your pension savings be greater than this amount then you will have to pay a tax charge and include such information on your Self Assessment tax return. A calculator is available to work out whether you have any unused annual allowance available, this being particularly useful because you are eligible to carry forwards any unused allowance if it exists from the 3 previous tax years. If present the unused allowance can be used to offset against any tax charge.

The second change will affect the ‘Lifetime Allowance‘ (or ‘LTA’) which is the amount payable from a private and/or work pension scheme (excludes State pension) before tax also becomes payable. Having already recently been cut from £1.8 million the LTA is currently set at £1.5 million but will be reduced to £1.25 million from 6 April 2014. The LTA is only applied to pension savings when you actually take your pension benefits, or at certain key events such as reaching the age of 75. Other examples of applicable key events are explained here. Read more