Updated: Updated to reflect current policy and timescales following Spring Budget 2017.
Making Tax Digital is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their tax affairs – meaning the end of the annual tax return for millions.
The government announced its vision for modernising the tax system at March Budget 2015.
At Spring Budget 2017 the government announced that it would provide 3.1 million small businesses with an extra year (until 2019) before they are required to keep digital records and send HMRC quarterly updates. You can read more detailed information about this announcement in this tax information and impact note.
Every individual and business now has access to their own personalised digital tax account and these are being regularly expanded and improved.
Helping businesses, self-employed people and landlords get it right first time
The tax system should make it easier for businesses to get their tax right first time. The latest tax gap figures show that too many businesses are prone to making mistakes with over £8 billion a year in tax lost from avoidable taxpayer errors. This not only costs the public purse – it also causes businesses cost, uncertainty and worry when HMRC is forced to look into their affairs.
The tax system should make it easier for businesses to get their tax right first time and Making Tax Digital for Business is an important step in this direction.
By 2020, most businesses, self employed people and landlords will need to keep track of their tax affairs digitally and update HMRC quarterly. This will help them steer clear of errors, reducing the cost to the public purse, giving them a clearer view of their tax position in-year and greater confidence they have got their tax right.
More details about how this will work are set out in the consultation responses.
We are introducing these changes gradually, starting with Income Tax in 2018 for businesses (including the self-employed and landlords) with annual turnover above the VAT threshold – followed by all businesses, self-employed people and landlords with annual turnover above £10,000 from 2019.
We will then move on to VAT (2019) and Corporation Tax (2020). We will thoroughly pilot these changes with businesses from April, starting slowly and ramping up to hundreds of thousands, before rolling them out. This will ensure the software is user friendly and gives individuals and businesses time to prepare and adapt.
Digital support
HMRC already provides a wide range of digital services and support for businesses and the self-employed. For example, over 1 million small businesses accessed HMRC’s digital help and support last year. Transforming the experience for small business explains the types of digital support available.
Smarter experience for individuals
The Personal Tax Account brings together each individual customer’s information in one online place. It allows customers to access the service from a digital device of their choice and at a time that suits them. It allows them to register for new services, update their information and see how much tax they need to pay.
Log-on to your personal tax account – it only takes a few minutes
HMRC is working closely with third parties to explore how more effective use of third party information can contribute to the modernisation of the tax system. This will mean customers never have to tell HMRC about information it already has. This was considered during the formal consultation period.
In 2017, we will start to use PAYE information to make in-year adjustments to customers’ tax codes in real-time. This will avoid both under and overpayments from occurring by the end of the tax year. Customers will be notified when the right tax is not paid and, through their Personal Tax Account, HMRC will provide a clear explanation of how the tax has been calculated.
Consulting with you
We’ve been informally consulting with people since early 2016, and published 6 formal consultations in August 2016. HMRC received over 1,100 written responses to the 6 consultations, and over 1,200 people responded to the online survey in the short guide to the consultations.
A summary of feedback from these consultations, the government’s decisions and our next steps have been published in 6 response documents. We’ve also published a short overview of the responses which draws out the key conclusions from each consultation.
HMRC has also published independent research into Making Tax Digital for Business which was used to inform the government’s thinking.
Roadmap
The Making Tax Digital roadmap, published in December 2015, set out how this bold vision for the future of the tax system would be achieved by 2020.
Source: HMRC