If you owe money to the taxman or have used inadvisable means to pay less tax, it's likely you're worried...
As many of the businesses and individuals obliged to arrange their own tax affairs will attest, getting one’s tax right isn’t always the most straightforward thing in the world. For some, meeting the tax payments, particularly for self assessment tax, can cause the kind of financial distress that leads to them seeking the aid of Insolvency Practitioners like us.
With the stated intention of simplifying the submission and payment of tax, HMRC have begun to introduce their ‘Making Tax Digital’ scheme. The Government’s stated aim is to make tax administration more effective, more efficient and easier for taxpayers to get their tax right.
With businesses and individuals using their own systems and proprietary systems to collect and calculate their financial information and accounts, submitting this information to HMRC can sometimes be challenging in that the government’s systems require information to be submitted in a particular format and inevitably, transcription and typographical errors regularly occur.
With the MTD system, submitting data to HMRC can be done automatically, with digital accounts systems able to communicate directly with HMRC and the user having little more to do than confirm that the information is correct prior to it being sent.
When does the Making Tax Digital Scheme Begin?
The Making Tax Digital Scheme applies from 1stApril, 2019 and initially will only be obligatory for VAT registered businesses whose turnover exceeds the threshold for mandatory VAT registration – currently £85,000 a year or more.
Businesses which meet these criteria must maintain their business records digitally and submit their VAT returns electronically using software which is compatible with HMRC’s MTD system on a quarterly basis.
Businesses which aren’t at the threshold or aren’t registered for VAT are being encouraged to start using the MTD systems, but aren’t being compelled to for the time being.
The Future of Making Tax Digital
The MTD Scheme was never intended to just cover VAT. From 2020, current plans are to expand the system to cover corporation tax for limited companies, as well as including National Insurance and Income Tax for sole traders.
Whether those who are not obliged to use MTD straight away will make use of it voluntarily before being obligated remains to be seen
What Difference Will the MTD Scheme Make?
While there are businesses who use basic spreadsheets to keep their company records, in practice, the businesses who are obliged to use MTD from April 2019 are probably large enough to already be using accounts software which is either already compatible or can be made so with ‘bridging software’. Such businesses already pay their VAT quarterly, so there is likely to be very little difference to them.
However, the real difficulties are likely to arise when MTD is expanded to cover other forms of tax. For those who currently wrestle with self assessment tax returns only once a year, it will effectively quadruple the number of submissions they’ll be obliged to make. It will also mean that their tax payments are cut down into smaller, but more regular payments. This could mean that tax payments become more manageable.
While some have welcomed the MTD scheme, others have expressed concern that it’s weighted in favour of HMRC and makes the prospect of overpayment a real concern.
Consultations are ongoing, so the future of the Making Tax Digital scheme is still to be decided, but businesses and individuals who might find themselves subject to it in the future will no doubt be keeping a close eye on developments and weighing up whether or not there’ll be winners and losers when the new scheme is applied and which of the two they’re likely to be.
If the new scheme, when applied to you or your business causes issues with cashflow while you adjust to it, there are likely to be precautions you can take or solutions which can be applied to help you manage the transition. We offer a free consultation to businesses and individuals in need of solutions to all kinds of financial challenges, why not take advantage and get in touch today to find out more?