Digital UK Tax System Ahead

Digital tax system ahead

There is no doubt that COVID-19 has increased the UK’s reliance on all things digital, from Amazon to Zoom and all stops in between!   It is also clear that government are currently travelling down a one way street towards a wholly digital UK tax system.   They talk about working towards a trusted, modern tax system that will fit with the way that taxpayers run their businesses and their lives.

HMRC cite the aims of this digitisation journey as to reduce the tax gap (the difference between tax actually collected and what should have been collected); enhancing the customer experience; keeping costs down and operating in a transparent way that is recognised as fair.

So in summary the government wish to make it easier for taxpayers to pay the right amount of tax, whilst tackling those who set out to cheat the system. A modern digital system, they say, that works closer to real time underpins the vision and aims of the government.

A roadmap was published some time ago and of course we have seen the introduction of Making Tax Digital (MTD) for VAT.  But what is in the pipeline?

 

VAT

Since April 2019, the vast majority of VAT-registered businesses with taxable turnover above the VAT threshold of £85,000, have been mandated to keep digital VAT records and to submit their VAT returns using MTD compatible software.

From April 2022, compulsory MTD for VAT will be extended to all VAT-registered businesses.

This means that all VAT registered businesses will need to use MTD compatible accounting software, such as Xero, for maintaining their accounting records and for generating the VAT return to be submitted to HMRC.  No longer will small businesses below the VAT threshold be able to use spreadsheets and key the details into the HMRC website as they can today.

 

Income Tax

MTD for income tax will apply from April 2023 for unincorporated businesses (sole traders) and landlords with total gross income above £10,000. Businesses and landlords who join MTD for income tax  will need to submit a quarterly summary of their business income and expenses to HMRC using MTD-compatible software.

With the gross income level set so low this will include the vast majority of sole trader businesses and in many areas of the country a property owner renting out a single unit.

Currently this information is given to HMRC annually on the self-assessment return so this change represents a notable increase in the level of interaction with HMRC.  Whilst the final details of the mechanism to achieve the requirements of MTD are not yet available experience of MTD for VAT would suggest that similar software solutions will be required.   It is though reasonable to expect that the software solutions currently being devised will make the process somewhat easier than using the HMRC website version of self-assessment.

 

Corporation Tax

A consultation on how the principles of MTD can be extended to Corporation Tax was launched in November 2020 and ran through until March 2021.  The government are currently analysing the responses to this consultation and we can expect further announcements in due course.  They have though already stated that MTD for corporation tax will not be mandated before 2026.

With the already announced introduction of MTD for income tax on some of the smallest UK businesses it is difficult to imagine that Corporation Tax will not be drawn into the MTD net.

 

The Advantages of Digital Accounting Records

The government have clearly set out their reasons for working towards a digital UK tax system.  However, we would argue that this isn’t all one way and that businesses, regardless of their size, can really benefit from using accounting software to keep digital records.  Our experience of MTD for VAT has been a very positive one and it has enabled our clients to really take control of their records and to benefit from the opportunities that the software offers.  We like to call this the “Digital Difference” and we suggest 6 clear advantages, though the order of importance of these is likely to be different by sector and business size:

  • Save Time & Money
  • Reduce Paper usage
  • Peace of mind with data security
  • Visibility of your numbers
  • Get Paid Faster
  • Work Anywhere

 

You can read more of our thoughts on each of these (and watch our video too) by clicking here

 

If we can be of any further assistance to you with Making Tax Digital, Digital Accounting Software or for that matter any tax or accounting matter please do get in touch by clicking here 

 

References

HMRC Making Tax Digital Communications Pack

HMRC MTD Corporation Tax Consultation Document

This page deals with tax matters
While we endeavour to use reasonable efforts to furnish accurate, complete, reliable, error-free and up-to-date information, the information on this page does not constitute advice. Your individual circumstances are important, and we recommend you always obtain specific professional advice from us or another accountant before you take any action or refrain from action.

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