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Digital Tax Accounts – what we know so far

Digital Tax Accounts – what we know so far

In the March 2015 Budget, George Osbourne announced the Making Tax Digital initiative. This included:

  • Digital tax accounts for all taxpayers (individuals and businesses)
  • Businesses required to maintain their records digitally, filing quarterly reports with HMRC
  • Real-time updating of information and records held by HMRC
  • Eventually, the end of the self-assessment tax return

Whilst there has been many objections raised to these plans, there has been a change of government leadership and we have voted for Brexit, it appears this initiative is still going ahead, so what do we know?

Major changes are being made to the way in which all taxpayers interact with HMRC. This is known as “making tax digital”. These changes will impact on every individual and business, regardless of size. What follows is a brief summary of what we know about this initiative so far, with many of the finer details to be consulted upon by HMRC before they are introduced.

For businesses, by far the most significant change is the requirement for digital record keeping. This will involve the use of software or apps to record income and expenditure, which can submit information to HMRC once every three months. It is worth noting that landlords who let out rental properties are included within the definition of ‘businesses’ and will have to comply with the new record keeping requirements.

HMRC plan to start with the smallest businesses first. Self-employed and landlord businesses with turnover less than the VAT threshold will move to the digital format for the year starting 6 April 2018. This applies if the business is the individual’s main source of income, or if it is a secondary source and the turnover is more than £10,000 per year.

The self-employed, partnerships and landlord businesses who are VAT registered will join in the year starting 6 April 2019. Lastly, all companies will join from 1 April 2020.

For individuals, the changes have already started to happen. Every person can register for a digital tax account with HMRC now. At this point in time the account contains only basic information but over the next four years more data will be added, such as details of employer/pension income and bank interest received. Eventually, it will be possible to declare all other sources of income and gains using the digital account, so that by 2020 it will no longer be necessary to file a self-assessment tax return.

If you look after or are involved with a not-for-profit organisation or charity, our current understanding is that HMRC would like to include the organisation within the ‘making tax digital’ campaign but will be holding a consultation on this first.

A recent Tax Faculty survey showed that just a quarter of businesses currently manage their accounts electronically using accounting software. Mandatory electronic record keeping will therefore mean significant change and expense for the majority of businesses. A lot of small clients are going to have to buy some sort of software that can interact with HMRC’s systems, as yet we don’t know how this will work. With more than 5 million business and 10 million individuals that’s quite a market for software vendors, so it is no surprise they are rushing to help HMRC go digital!

Given HMRC’s record of implementing large scale IT projects its not surprising there is a degree of scepticism from the profession. Barry Jefferd Tax Partner at George Hay commented “At present there is a huge chasm between the profession and HMRC over digital and quarterly reporting. HMRC are determined to progress with quarterly filing of tax returns for all companies, unincorporated businesses and taxpayers with rental income over £10,000.  The current timetable says pilot schemes should be up and running from 6 April 2017.  They have promised six consultation documents setting out different aspects of how they think the scheme may work.  With Government having effectively ceased since Easter, these have not yet been issued so the chances of effective implementation are remote.”

Trials for the changes are expected to begin on 6 April 2017 with the first live implementation from 6 April 2018.

We will keep you updated as things become clearer.


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