Whether your business is big or small, it is likely that you already complete some or all of your tax returns online (or your accountants does it on your behalf). It is often quicker and easier to complete tax returns online and a record of the returns is easy to find and easier to submit. For those of us who haven’t quite made the switch, HMRC has decided to make using some digital taxation systems mandatory by 2019 – something that might sound scary, but really doesn’t have to be.
Why does the government want to make tax digital?
Using information more effectively – HMRC will hold all kinds of information about us including bank details, employer details and benefits information. MTD will allow them to combine this information and tailor it to suit the needs of each of their customers. Plus we can see all of the information that HMRC holds in one place.
Real time tax – Rather than waiting for the big shock of your tax bill at the end of the financial year, you can take a look at your tax bill at any time and know how much you owe. This will make it easier to save and get money back if you are owed.
One single account – All of your entitlements and liabilities are kept in one place, building a comprehensive picture of your financial affairs that you can access at any time.
Better interaction – HMRC will be able to contact customers via digital means such as messaging and email and offer support, prompts, reminders and other personalised information as and when necessary.
So how will MTD work?
Each of us will be issued with a Personal Tax Account where all of our taxation and employment detail are gathered together. You can register for new services and see tax owed in one place. At the moment all information is set up in separate stand alone systems and we have to work out for ourselves what the overall picture is. The aim of the Personal Tax Account is that different agents (such as your employer) will give information about you that will allow HMRC to complete tax forms such as Self Assessment on our behalf – saving us time and effort.
The MTD system will become mandatory from 2019, but then only for VAT businesses – the smaller businesses with lower turnovers will not need to complete their tax online. VAT has already been online since 2010, so this step is not a huge change.
However it is expected that many businesses will start to take advantage of the digital systems over the next few years on a voluntary basis, simply because it is easier and more simple. This slower approach is designed to make the transition easier for those businesses that still use more traditional methods. The voluntary approach is expected to remain in place until at least 2020.
So what should I do?
Keep an eye out for the HMRC pilot tests which are taking place for income tax and NICs. Pilots for VAT are expected to be underway in Spring 2018 and will take place for at least a year before it becomes compulsory. Once it is compulsory, you will be expected to give quarterly updates and keep all records digitally on their system. Your accountant can help you with this if you are unsure.
Beyond that, you can start to make plans to move all of your tax and business details across to digital methods if you have not already done so. This might mean moving to HMRC approved software or asking your accountant to show how they are ensuring you are digitally compliant.
Should I worry about security?
Having all of your tax affairs online may have some cyber security implications, but the government has addressed this issue and assures us that all records will be securely held and subject to data legislation. This is more about bringing together all of the information that they currently hold and providing us with easy updates on our affairs. It could be argued that having it all in one place is actually safer as Personal Tax Accounts will be subject to higher levels of security.
MTD may be moving slowly, but if you wish to start your digital taxation journey, your accountant will be able to help you get online and understand the system as it stands.