Making Tax Digital is on its way in¦eventually. Yes, the government’s shake up of the way businesses manage their tax affairs has been delayed further. The announcement comes after pressure from Parliament’s Treasury Committee, who determined that the current schedule was simply unachievable. Read on to see why the plans were problematic and when you can expect changes to come into force.
Introducing Making Tax Digital
Originally planned to come into effect in April 2018, Making Tax Digital (MTD) will see businesses keeping tax records digitally at quarterly intervals. First to be affected, according to the original schedule, were businesses above the VAT threshold currently set at £85,000 from April 2017 but set to rise next year.
Smaller businesses were expected to start their digital records the following tax year, from April 2019. And any businesses with revenues less than £10,000 were exempt from the plans. Read more about the original schedule here.
A closer look¦
So, what’s the problem? In January 2017, a report was published by Parliament’s Treasury Committee. It found issues with the current plans, suggesting MTD could be a disaster if it isn’t implemented with care. Specifically, the Committee identified two shortcomings engagement and the burden on small businesses.
The government expects to raise around £625 million by introducing MTD. But there are fears they would lose money because of the impact on small businesses. With the extra cost and administration burden, the report suggests a number of companies could go out of business or enter the hidden economy avoiding tax altogether.
As for engagement, the Committee determined that consultation with the business community had been insufficient. Companies simply aren’t ready to handle the reporting responsibility, with further issues expected from such a quick implementation.
Plan
Because of these issues, the Committee has recommended a new approach to MTD. Firstly, they put forward a new threshold above £10,000 in revenue to exempt more small businesses from the changes. They also recommended more comprehensive pilots of the new system, covering the full cycle of four quarterly reports and an end of year reconciliation.
Businesses need to be fully protected in these pilots, with a wider range involved to assess how it will affect all types of business. Previously, they have been invited to pilots by HMRC, but the report suggests that those most affected by the changes are most likely to decline.
Finally, the committee highlights the importance of fully functioning software, which must be made available for smaller businesses. To achieve these changes, they suggested a delay until at least 2019/20.
Taking it on board
In response to the report, the government has delayed the timetable of the changes. Businesses will be able to voluntarily switch to online self-assessment without a deadline. They won’t be asked to record tax digitally or make quarterly updates until at least 2020. Those in excess of the VAT threshold, currently £85,000, will be required to keep digital records from April 2019, but only for VAT.
Preparing for changes
In business, it’s always best to be proactive rather than reactive. Preparing for changes gives you a head start and reduces the administration burden and costs that cripple so many small businesses.
At UWM, we provide a wide range of accounting services from auto enrolment and business planning to cloud accounting to ensure you’re always ahead of the game. Whatever your industry and whatever your needs, be sure to get in touch with our team of accounting experts to see how we can help you.
