Digital Tax is HM Revenue & Custom’s (HMRC’s) approach to modernising the tax system. There are two strands to the initiative – one aimed at individuals and the other at businesses.
Digital Tax is being introduced in phases to ensure HMRC have put in place and tested the necessary systems. Here, we provide an overview of what has happened and what is yet to come – and when!
The first taxpayers to be affected by Digital Tax are individual tax payers.
Individual tax payers fall into two groups – those who submit self-assessment tax returns and those who fall wholly within the PAYE system. Individuals with income from self-employment or property are regarded by HMRC as being in business.
Digital Tax for individuals centres on the provision of a Personal Tax Accounts (PTAs) for each taxpayer. PTAs give individuals access to the information that HMRC holds on them. HMRC began rolling out the accounts in July 2017 and everyone should have one by the end of the year.
It will be important to check your PTA on a regular basis for any inaccuracies or anomalies and report them to HMRC.
Over time, as HMRC continues to simplify the tax system, some individuals will move out of self-assessment and into the PAYE system where their tax affairs will be managed through their PTA. If you are a client of WMT, we will advise you if this is likely to happen to you as part of your annual tax return service.
In July 2017, HMRC dramatically revised their plans for the roll-out of MTD for business after consulting with agents and taxpayers.
VAT registered businesses will now be the first to enter the MTD regime, but only for VAT reporting. This will affect incorporated and unincorporated businesses, companies, LLPs, and charities.
If you are registered for VAT, you will need to maintain digital tax records and submit VAT information to HMRC in a compatible digital format from 6 April 2019 – although you can start sooner if you wish. This means you must maintain digital records for at least three months before your first quarterly digital VAT record is submitted.
Businesses below the VAT threshold (even if they are registered for VAT), the self-employed, landlords, partnerships and trusts have much longer to plan. They are not expected to have to enter the regime until April 2020 at the earliest.
If you fall into this category, you will need to keep digital records and submit quarterly reports on income tax and corporation tax, as relevant, in a digital format. You will also need to make an end of year declaration to finalise your tax record. As your tax adviser, we will be able to make your quarterly returns and annual declaration on your behalf.
For very simple tax affairs, HMRC are confident that free software will be available for taxpayers in time to make their first compulsory submission. You will also be able to use spreadsheets that conform with HMRC’s record-keeping requirements. If your affairs are a little more complicated – and certainly if you have employees – you should consider using commercial software. We can help you choose the most appropriate way to keep your records.
HMRC’s plan is constantly evolving as new information comes to light and we will let our clients know of any developments that affect them.
We are expecting to find out more about the information and requirements for VAT reporting when the VAT regulations are published. These are expected no later than April 2018.