Making Tax Digital

You may not have come across the phrase “Making Tax Digital” before. If so, you’re about to become very familiar with “MTD” over the coming months.

In his March 2015 Budget speech, George Osborne announced the death of the tax return. All the tax information relevant to an individual would be gathered into the taxpayer’s “digital tax account”, and the annual paper tax return would be consigned to history.

Whilst this isn’t quite true, there’s no doubt that Making Tax Digital will be the most sweeping change to the administration of personal taxes in the UK since the introduction of Self Assessment in 1996/97.

The intention is for taxpayers, or their agents, to be able to update their own tax information via their online account whenever they wish. Much of the required data will be automatically uploaded into the taxpayers digital tax account via third parties. This data will include pensions, salaries, benefits and bank interest.

Digital tax accounts should then show taxpayers an overview of their tax liabilities – and when they are payable – all in one place.

However, entries which are non-recurring in nature will not be populated. Examples of these would include capital gains, EIS investments, charitable donations and pension contributions. Therefore, there will still need to be an annual review to ensure all sources of taxable income (and gains) have been uploaded and claims for all deductions and reliefs have been made.

If you are self-employed, or are a private landlord then, in addition, you will be required to file quarterly accounts to HMRC within 30 days of the quarter end or risk filing penalties. There will then be a final declaration, made within 10 months of the accounting year end, to reflect any accounting adjustments, capital allowances etc, in order to calculate the final, taxable figure.

The timing of the quarterly returns for businesses and landlords is complicated and is based on turnover levels. We’ll send out a separate email setting out the timing shortly.

HMRC expect accounts to be filed electronically, usually via accounting software such as Sage, Xero, Freeagent etc. Initially, this did not include accounts prepared via spreadsheets but these are now acceptable albeit it requires some conversion software. However, if you have previously kept manual books and records you will be obliged to transfer to accounting software or spreadsheets.

We can all agree it’s not quite the death of tax returns after all.

HMRC’s timescales for implementation have constantly shifted over the last few months and there is no guarantee that they won’t be put back again. We can only work with what we know today.

We are here to help and guide you through the process. We shall give you regular updates going forward and your usual Dains contact will take the opportunity to discuss how MTD affects you personally when you next meet over the coming weeks and months.

If you have any queries or concerns – whether it be the timing, software issues or anything else - then please get in touch with your usual Dains contact, or request a call back on our freephone number 0800 298 3899 or email enquiries@dains.com.