‘Making Tax Digital’ (MTD) is a government initiative that sets out a vision for ‘a transformed tax system and the end of the tax return’ by 2020. Under the MTD scheme, HMRC is aiming to create a single ‘digital account’ for each taxpayer in order to unify their different taxes and make it easier to manage their tax affairs. Taxpayers will be able to log into their digital account in order to view any payments made and offset overpayments from one tax against underpayments in others.
The introduction of quarterly self-assessment tax returns
Under the proposals, the tax system will be changing dramatically from April 2018 with the annual self-assessment tax return being replaced by four quarterly returns for the self-employed and landlords. Taxpayers will be able to choose their quarter end to make it easier to tie into existing VAT quarters and accounting year ends.
Any income which HMRC already knows about such as interest from bank accounts and employment income will be automatically fed into the return. Returns will have to include income from self-employment, partnerships and rental income and will need to be submitted within one month of the quarter end. There will be penalties for late returns although there are still questions as to what the penalties will be and how they will be calculated.
At present, the proposals do not require tax to be paid quarterly so existing payment dates will remain, however HMRC will accept voluntary payments. The use of computer software will be required with HMRC stating free software will be made available.
The government has already pledged to remove the smallest businesses, self-employed people and landlords from the scope of the changes by exempting all those with annual turnover of less than £10k from digital record keeping and quarterly updates (although they can still choose to enrol). This was in addition to those who were already removed from scope by the exemption for those with secondary income below £10,000.
HMRC has stated that limited companies will also have to file quarterly returns by 2020.
The proposed timescale
- July – December 2017 – Digital tax accounts will show taxpayers an overview of their liabilities in one place.
- July – December 2018 – Most businesses, self-employed people and landlords start updating HMRC quarterly for income tax and national insurance obligations through accounting software.
- 2019 – Most businesses, self-employed people and landlords start updating HMRC quarterly for VAT obligations through their accounting software.
- 2020 – The full range of HMRC services is available through digital tax accounts.
More information can be found on HMRC’s ‘Overview of the Making Tax Digital’ Policy Paper
We will be keeping a close watch over the changes in the coming months. If you have any questions, please contact us.