Making Tax Digital is a government initiative that aims to simplify the tax system by 2020, and reduce the significant cost of administration. Essentially, each business and individual taxpayer will have a single digital tax account via which they can view and deal with all their tax affairs.
Personal Tax Accounts and Business Tax Accounts will hold information that can be updated at any time during the year. This will bring an end to company tax returns in the majority of cases, but other filing and administrative obligations will arise under the new system.
Limited companies are expected to become fully involved by 2020, although online submission and filing of company tax returns and statutory forms is already a requirement.
MTD and limited companies
The timescale for introducing Make Tax Digital for limited companies has been liable to change, with 2020 being the latest date set. There have been requests for additional time to prepare, so that company directors and members of staff can become familiar with the new software and apps.
This also allows directors the time to organise their company’s affairs, and facilitate a smooth roll-out of the new arrangements. The government’s intention is to merge all aspects of tax and NI into one system that makes it easier for company directors and small business owners to meet their obligations.
Making Tax Digital for business
So what will be included in your company’s new Business Tax Account? You will be able to view the company’s liability for VAT, Corporation Tax, and PAYE, as well as update the system with new information.
These regular updates should help to reduce the number of errors made on tax returns and when making payments, and lower the likelihood of you facing penalties and additional interest for late or non-payment.
Self-assessment under the new regime
New filing obligations under MTD are coming into play if you are registered for self-assessment as a company director. From April 2018, rather than completing the standard end-of-year tax return, you will need to input your income and expenditure online every three months.
This system replaces the existing end-of-year self assessment tax return. At the end of the tax year you will also make an End of Year Declaration, which replaces the self-assessment declaration.
What about paying tax?
Current thinking is that you will be able to make voluntary payments of tax throughout the year, which may assist some companies and taxpayers to budget more efficiently. It is possible that four tax payments become obligatory when the procedures are finalised, rather than the current payment on account system.
Criticism of the proposed new system
Many aspects of the Making Tax Digital initiative have received widespread criticism, not least of which is the proposed new requirement to input income and expenditure on a quarterly basis.
It is unclear at the moment how limited companies will truly be affected by the new arrangements, but there have been calls for extra time to prepare, and also to allow comprehensive testing of the proposed new software through a full accounting cycle.
HMRC has recently confirmed that digital record keeping and the provision of quarterly updates will be tested for a full year from April 2017.
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