'Making Tax Digital' might sound less than exciting, but in fact this new set of government proposals look set to completely overhaul the way that Self Assessment taxpayers deal with HMRC.
The plans, now in the consultation stage, will significantly change your interactions with the taxman. So what’s going on?
The most major proposed change in the MTD consultation is the long-promised shift to a digital-only tax system. As the government says: “The way you interact with the tax system is changing. From 2018 it will become increasingly digital and most businesses, the self-employed, and landlords will need to use software or apps to keep their business records.”
For those who submit tax returns or keep records on paper, this represents a big change. In practice, it means that those taxpayers will now need to use accounting software such as Xero, Free Agent, or Clearbooks, and submit returns through HMRC’s revamped online portal.
Some weeks ago, there were rumours that the government would be introducing quarterly tax returns. The idea was met with anger from the small business community, and a petition opposing it received tens of thousands of signatures.
In fact, the proposals are slightly more nuanced than expected. The government is proposing a change in the basis period system, which would see self-employed people moving to a similar regime to that seen for companies. This could in theory mean that tax is reported and calculated on a three-monthly basis, rather than annually. The government is also proposing that tax is calculated monthly for those in receipt of Universal Credit.
Another major change could be seen in the ways in which capital expenses are offset against tax. The proposals would see 100% relief given immediately on assets that depreciate, the major exception being cars.
The proposals also include changes to the fine structure for late tax payments, putting the charge up from five per cent to 15 per cent of the unpaid bill if you fail to pay after 12 months.
Making Tax Digital, then, is clearly more than just the ‘digitisation’ of the tax system. In fact, it’s a pretty radical set of changes that impact many different parts of the regime.
However, there are some exemptions. The most important is for those with an annual income below a new £10,000 threshold. However, the so-called ‘digitally excluded’ will also be exempted – this covers those who can prove to HMRC that they are unable to use the digital reporting systems, for example because they live in a rural area without broadband.
We’ll be bringing you more on Making Tax Digital as the scheme progresses.
What do you think about the plans and how do you expect them to impact you? Let us know in the comments.
18 March 2020 • 4-minute read
With information on the coronavirus (Covid-19) outbreak changing almost hour by hour, it’s hard to figure out what support is available to…
12 March 2020 • 2-minute read
Chancellor Rishi Sunak announced the first UK Budget since October 2018 amid continuing political and economic uncertainty. Here’s the key…
6th Floor99 Gresham StreetLondonEC2V 7NG
Sol House29 St Katherine's StreetNorthamptonNN1 2QZ
© Copyright 2020 Simply Business. All Rights Reserved. Simply Business is a trading name of Xbridge Limited which is authorised and regulated by the Financial Conduct Authority (Financial Services Registration No: 313348). Xbridge Limited (No: 3967717) has its registered office at 6th Floor, 99 Gresham Street, London, EC2V 7NG.