Making Tax Digital For Business

There is widespread agreement that Making Tax Digital for Business is the right approach for the future. However a number of concerns about the pace and scale of change have been raised. The government has announced that the roll out for Making Tax Digital for business has been amended to ensure businesses have plenty of time to adapt to the changes.

Businesses will not now be mandated to use the Making Tax Digital for Business system until April 2019 and then only to meet their VAT obligations. This will apply to businesses who have a turnover above the VAT threshold - the smallest businesses will not be required to use the system, although they can choose to do so voluntarily.

The government remains committed to ensuring we can deliver a modern, digital tax system for all businesses and their agents supporting them to get their tax right and reducing the amount of tax lost through avoidable error.

HMRC’s initial estimate of the change in our implementation plans is that it will mean lower costs for business. Exchequer benefits will be subject to OBR scrutiny and certification. HMRC will revise this TIIN in the autumn when impacts and benefits have been fully assessed and certified.

Who is likely to be affected

Businesses, self-employed people and landlords will be required to start using the new digital service from:

  • April 2018 for income tax and National Insurance contribution (NICs) purposes if your turnover is over the VAT threshold

  • April 2019 for income tax and NICs purposes if your turnover is below the VAT threshold

  • April 2019 for VAT purposes for everyone who is VAT registered

  • April 2020 for Corporation Tax (CT) purposes for everyone who pays CT

Businesses, self-employed people and landlords with turnovers under £10,000 are exempt from these requirements.

Those in employment who have secondary income of more than £10,000 per year through self-employment or property will also be required to use the digital service.

In the consultation the government said that it was considering exempting more of the smallest unincorporated businesses from the requirement to keep digital records and make regular updates to HM Revenue and Customs (HMRC).

The government announced at Spring Budget 2017 a one year deferral from the mandating of Making Tax Digital for Business (MTDfB) for unincorporated businesses and landlords with turnovers below the VAT threshold. This means that only those businesses, self-employed people and landlords with turnovers in excess of the VAT threshold with profits chargeable to Income Tax and that pay Class 4 NICs will be required to start using the new digital service from April 2018.

General description of the measure

The government recognises that the majority of businesses want to get their tax right, but the latest tax gap figures published by HMRC show that too many otherwise compliant businesses find this hard, even some who use an agent to help them. As a result over £8 billion a year in tax is 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 intervene to put things right.

HMRC wants to do more to help businesses get their tax right and these changes are a very important step in that direction. It will help businesses steer clear of avoidable errors, and give them a clearer view of their tax position in year.

Businesses (including self-employed and landlords) will be able to keep records of their income and expenditure digitally, and send summary updates quarterly to HMRC from their software (or app).

Those who genuinely cannot get online due to their individual circumstances such as disability, geographical, or other reasons, will be exempted from these obligations.

Policy objective

These digital reforms will bring the tax system into line with what businesses and individuals now expect from other online service providers: a modern digital experience.

These changes will help businesses get their tax and NICs right first time. That will reduce the likelihood of errors, giving businesses greater certainty.

The reforms are anticipated to take out around 10% of error on an ongoing basis, and give businesses a clearer view of their tax position in year, enabling them to plan to meet their tax obligations at minimum cost and minimum disruption.

Background to the measure

At Budget 2015, the government set out the vision for a transformed tax system, and in December 2015 it published the Making Tax Digital roadmap. This set out the government’s plans to make fundamental changes to the tax system, transforming tax administration by 2020 so it is more effective, more efficient, and simpler for taxpayers.

This tax information and impact note (TIIN) updates the TIIN published on 31 January 2017.