In an attempt to become one of the most digitally advanced tax administrations in the world, HMRC have continued to roll out its latest development 'Making Tax Digital' (MTD) with live pilots and testing software to ensure a smooth implementation.
'Making Tax Digital is making fundamental changes to the way the tax system works - transforming tax administration so it is more effective, more efficient and easier or taxpayers to get it right'.
Theresa Middleton, Director of Making Tax Digital for Business
MTD is a key part of the government's plans to make it easier for individuals to get their tax right and keep on top of their affairs, whilst also significantly mitigating the risk of VAT fraud within the UK. The introduction of MTD would ensure that all fiscal records are completed and stored electronically, reducing the amount of tax lost through avoidable error and illegal declaration. Although MTD is currently at prototype stage, the final version will allow you to complete Income Tax Self Assessment (ITSA), Value-Added Tax (VAT) and Corporation Tax (CT) on the MTD software.
What is Making Tax Digital for Business, and what's the technology behind it?
In short, Making Tax Digital for Business (MTDfB) will revolutionise how all businesses store and and complete their tax returns. This change means that no business will need to provide information to HMRC under MTDfB more regularly than they do now. VAT has been online since 2010 and over 98% of VAT registered businesses already file electronic returns.
MTDfB will build on this by integrating digital record-keeping to provide a single, seamless process with quarterly updates generated and sent direct from the software the business/agent uses to keep their records. The technology, which includes HMRC's provision of Application Programme Interfaces (APIs), will allow tax to be integrated into business records, meaning 'doing tax' will be easier and more convenient.
The software can:
- Keep all digital records
- Generate and send quarterly updates direct from digital records
- Interact with agent software to allow them to check/send updates
- Link with Excel for those that prefer
Although HMRC will provide the APIs, it won't be offers its own software solution. Instead, software developers will provide a range of accounting packages and record-keeping apps to enable business to keep their records digitally.
HMRC is currently working with software developers to enable apps and software to link safely and securely to HMRC systems, which is covered entirely by a publicly available Terms of Collaboration. This being said, free software will be available for income tax for businesses with the most straightforward tax affairs.
Is MTDfB mandatory for all businesses?
Following a Ministerial Statement in July 2017, it was announced that the pace of mandation will be slowed.
MTDfB will be VAT mandated in April 2019, for those businesses that are above the VAT threshold (currently at £83,000 but is likely to fluctuate before the mandation period). However, the service will also offer a voluntary option for businesses under the threshold to join MTDfB.
For ITSA, CT and VAT for those businesses under the threshold, there will be a potential mandation announced in 2020, but this is yet to be confirmed.
When is MTDfB being implemented?
Although MTDfB is not yet live to the public, HMRC, since April 2017, have been conducting a live pilot with a controlled group of users.
The services available through the pilot are:
- A web service to allow customers to sign-up to MTDfB.
- A suite of APIs allowing software developers to provide customers, via their software, with the ability to submit data related to Self Employment and/or income from UK property to HMRC and receive a calculation of emerging tax liability.
- A web service allowing Agents to subscribe to Agent Services, be assigned an agent’s reference number and then map this to their existing agent’s reference to access services through their third party software.
- Access controls for income tax and MTDfB to ensure a client’s data can only be accessed and updated by an appropriately authorised agent.
- A web service allowing an Agent to subscribe their client to MTDfB.
- A suite of APIs allowing agents to submit the same data to HMRC as their clients can.
In addition, a list of implementation timelines have been released by HMRC for the indiviudal taxes:
May 2016 - Private Beta launched
Autumn 2017 - Public Beta / ongoing pilot
Autumn 2017 - Design, Policy, Legislation
Autumn/Winter 2017/18 - VAT Technical Private Beta
Spring 2018 - VAT Public Beta
April 2019 - VAT Go Live (for those >VAT threshold)
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