Since Making Tax Digital (MTD) was rolled out for VAT in April 2019, we knew then that the Government’s intention was to eventually broaden the programme to encompass income tax and corporation tax.

The regime itself is geared towards reducing the risk of preventable human error, towards reducing the tax gap and towards giving taxpayers the tools they need to confidently keep on top of their tax affairs.

As it stands, all VAT-registered businesses with a turnover in excess of the VAT threshold (currently £85,000) must keep their VAT records digitally and file quarterly VAT returns electronically, using MTD compatible software.

There has been much written in the year since its implementation about the preparedness of and uptake by those businesses within scope, and about the overall success of the scheme.

Preparedness for the transition was challenging for most but nevertheless, in its latest evaluation of the VAT service , HM Revenue & Customs (HMRC) report that the regime has been largely successful on a number of counts, including registrations.

Notably, everyone’s experience of the service will be different and there are always improvements that could be made.

However, the learnings from MTD for VAT (MTDfV) are such that HMRC has now shared details of a bigger ten-year plan to ‘modernise’ the administration of the tax system, which includes next steps for the MTD initiative, as part of the Finance Bill 2020-21 legislation announcements on 21 July.

Extending the MTD programme

With the extension of the MTD project, those VAT-registered businesses that were previously outside of the scope of the MTDfV regime (i.e. with turnover below the £85,000 threshold) will be required to keep digital VAT records and file quarterly VAT returns using MTD-compatible software. The rules will take effect for VAT periods starting on and after 1 April 2022.

Where income tax is concerned, HMRC’s plan indicates that unincorporated businesses and landlords will be expected to keep digital records and begin quarterly reporting via MTD-compatible software from April 2023.

HMRC has not proposed an implementation date for MTD for corporation tax but has confirmed that it will publish a consultation paper to address this part of the project in Autumn.

A ten-year plan for tax system modernisation, but what is HMRC’s ‘end goal’?

Aside from extending the MTD initiative to encompass more taxes and taxpayers, in the next 10 years the Government intends to take a consultative approach to:

  • Considering the timing and frequency of the payment of different taxes, and the technology infrastructure needed to support that; and,
  • reforming the tax administration framework itself.

How can George Hay help?

Whenever we’ve talked about Making Tax Digital previously, we have always been upfront about the direction in which the project is travelling and encouraged our clients to consider the benefits of embracing cloud accounting software sooner, rather than later.

If you’re one of the businesses who has voluntarily made the switch, then you are undoubtedly at an advantage as we consider how the programme is likely to develop in the next two to three years.

If you haven’t yet made a place for digital tools and software within your business, now that we have an insight into HMRC’s plans for the future of the tax system, it could be a good time to begin to explore your options and consider how you might accommodate changing administrative requirements.

To discuss your circumstances in more detail with one of our expert tax advisers, please contact us today.

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