Making Tax Digital

Starting in April 2018, the government intends to implement major plans to modernise the tax administration system by introducing digital services for tax.

There are three main strands to these proposals, as follows:

  • personalised digital tax accounts for individuals and for businesses
  • quarterly digital reporting of income and expenditure by businesses, self-employed people and landlords
  • options for paying tax

Digital tax accounts

Digital tax accounts for individuals have already been created by HMRC. These are called Personal Tax Accounts. These accounts have been linked to HMRC internal systems so that they will be pre-populated with income and tax details that HMRC already hold. This includes employment income and any state or personal retirement pensions. From April 2018, it is intended that interest paid by banks and building societies will be included in digital tax accounts. Taxpayers will also be able to report any additional sources of income through their digital tax accounts in 2018.

HMRC expect that with pre-populated information and taxpayers able to add in other sources of income, the digital tax account will mean that a significant number of taxpayers, with relatively straightforward tax affairs, will not need to complete a tax return.

Digital tax accounts are also being established for businesses and these will show an overview of the income tax or corporation tax, VAT and NIC details of the business. In order to show details of the income subject to income tax or corporation tax, details of the business's income and expenses will be provided by new quarterly tax updates.

Quarterly updates

By 2020, most businesses, self-employed people and landlords will be required to keep track of their tax affairs digitally and update HMRC at least quarterly through their digital tax account.

These changes will commence in April 2019 starting with businesses whose turnover is above the VAT threshold (currently £85,000 pa).

It is then expected these measures will apply for other businesses and landlords whose gross income exceeds £10,000 from April 2020.

To meet these quarterly reporting requirements, taxpayers will be expected to use software or apps which record day-to-day transactions, categorise them into different types of income or expenses and then feed the summary data directly into HMRC systems. HMRC has no plans to offer free software but expects developers to provide free software for businesses with the most straightforward affairs.

What about partnerships?

The consultations propose that a partnership, through a nominated partner, would fulfil the obligations of record keeping on behalf of the partners. The partnership's updates would then feed directly into each partner's digital tax account as pre-populated income based on the profit allocation of the partnership. Therefore individual partners would not have to maintain their own digital records. A similar approach would be taken for jointly held properties which are let out.

The 'End of Year' return

Throughout the year, businesses will have provided HMRC updates of their business income and expenditure. After the end of the year, having made any adjustments to arrive at their taxable profit or loss, businesses will make an 'End of Year' declaration that everything is correct and complete. This declaration will be made within nine months of the end of a period of account (normally a period consisting of four consecutive quarterly returns).

Tax payment changes

Businesses, self-employed people and landlords, who are keeping their records digitally, will be able to adopt pay-as-you-go tax payments on a voluntary basis. There are however no plans to change the dates by which income tax is due.

How we can help you

At the moment, you do not have to do anything in respect of these developments. If you do want to access your digital tax account you may need to verify your identity. You can find details at: If we are your tax agents, we cannot access the account on your behalf.

If you would like to know more about the proposed changes under Making Tax Digital and what they could mean for your business, please do not hesitate to get in touch with us.