Making tax digital - what's next?

Most people rely on their accountant to ensure their taxes are correct and stay up to date, often providing all of their information in one go. The introduction of Making Tax Digital (MTD) in the UK is a key part of the government’s objective for individuals and businesses to efficiently, effectively and more easily keep on top of their tax affairs.

Helen Gale, Head of Tax, describes what MTD is and how it is being rolled out inline with HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world. She also highlights some key areas to consider, including penalties that will be issued by HMRC from 2023 for late filings or late payments.

What is MTD?

MTD is the digitalisation of the UK tax system which is designed to make things easier for individuals and businesses to get their taxes right and stay up to date.  It’s being phased in over a number of years and has so far been focused on VAT registered businesses since April 2019.  In simple terms, MTD requires the individual or business to record each transaction digitally and then make quarterly returns to HMRC using compatible software.  HMRC do not offer any free software as they do now for the filing of self-assessment tax returns, where data is directly inputted to the government gateway.  Affected individuals will need to decide what software they will use, and this is likely to be the first additional cost along the road.  Eventually, we expect HMRC to request payment at the same time the quarterly return is filed just as businesses do with quarterly VAT returns but that is some way in the future. 

The next stages

So, who will have to start filing these quarterly returns and from when?  The next group affected are self-employed individuals and landlords with annual business or property income (before expenses) above £10,000 and this applies from 6 April 2023.  This may seem like quite a long way off but in reality, these things have a tendency to creep up on us and so it's better to be aware so that you know what’s coming and what you need to do to be ready. 

One of the main changes will be the switch from providing your accountant with all the relevant information once a year alongside the rest of your tax return information – things will be more real-time rather than historic and this will require a fair amount of organisation.  As accountants are used to operating in this way, we can guide you through this and make recommendations for software.

There is a lot of finer detail yet to be announced by HMRC and we will keep you updated as details are confirmed.  What we ask right now is for you to give this subject some thought then get in touch so that we move forward together to be ready when the system goes live.

Penalties

In line with MTD, and as part of a general review of the penalties system, HMRC have announced a new regime which will come into effect at the same time i.e. April 2023.  Instead of automatic late filing penalties, there will be a type of points system where, put simply, you will be given points on each occasion of a late filing or a late payment, and when they reach a certain number, a penalty of £200 will be charged.   Like penalty points on a driving license, these don’t last forever and will expire after 12 months for quarterly returns.

MTD for companies is expected to start with voluntary participation in a pilot scheme from April 2024 with all other companies joining from April 2026.

How can Haines Watts help?

We advise clients with a broad range of tax related matters across a number of sectors throughout the South West.

If you would like to have a conversation to see if our advice about getting organised ahead of time for MTD or for any other tax advice, please get in touch with your usual Haines Watts contact or Helen Gale.