George Osborne announced Making Tax Digital back in 2005, but HMRC did not provide much information until early 2017. The intention is that all businesses and landlords will make quarterly submissions to HMRC of their turnover and taxable profits. This would replace the need to file annual tax returns.
A more detailed timetable for its implementation was included in the March 2017 budget:
- April 2018 – All businesses and landlords paying income tax with turnover over the VAT threshold of £85,000
- April 2019 – Businesses and landlords under the VAT threshold but with a turnover of over £10,000
- April 2020 – Any business paying corporation tax
This legislation has been dropped due to the announcement of the General Election but this is likely to be only a temporary delay as both the government and HMRC have indicated their intention that quarterly digital reporting will become mandatory.
HMRC argue that quarterly reporting will provide greater certainty and reduce errors due to better record keeping, but the cynical would say the greatest benefit will be to government borrowing. Once HMRC have quarterly figures it is only to be expected that they will expect taxpayers to pay quarterly rather than to pay after the end of the tax year, as they currently do.
Larger businesses and those already submitting quarterly VAT returns may already be using accounting software that will facilitate the digital reporting but it is likely to have big implications for landlords and small businesses who currently use spreadsheets to produce accounts at the year end to file their tax returns. HMRC has indicated they will provide an online filing tool but as yet we have little information as to what this will entail but small businesses and landlords will have to change the way they operate so that they can submit the necessary information quarterly.
All business owners need to be aware of the implications both for record keeping and for cashflow.