Making tax digital is the biggest change to the administration of tax since the introduction of PAYE in the first half of the last century. It will affect every individual who is a taxpayer and every business in the UK. It will change the way that businesses keep their accounting records and report their income to HM Revenue and Customs.
The new system will also offer the opportunity for self-employed taxpayers to pay their tax through optional ‘pay as you go’ instalments, based on the detail filed with HMRC under MTD.
Key points include:
Businesses must keep digital accounting records. There will be rules about these records must include and in what detail
Business must update HM Revenue and Customs with their income and expenses at least once every three months via a software that complies with Making Tax Digital.
Once a year the accounts for the business must be finalised by adding in the year-end adjustments and capital allowance claims if any. The period for filing this will vary depending on the year end date but the standard 31 January deadline will remain for business with a 31 March year end.
Taxpayers will enter and/or confirm details of their other sources of income in their personal tax accounts
Unincorpated business with turnover above the VAT threshold will start reporting under Making Tax Digital from 5 April 2018
From April 2019 businesses that are VAT registered will also have to submit their VAT returns through Making Tax Digital software.
Limited Companies will join Making Tax Digital from April 2020.
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This post was written by Daisy Vowles