Making Tax Digital Delayed – What This Means For Small Businesses

Making Tax Digital

Making Tax Digital (MTD) has been talked about a lot in recent months, even as part of the Election manifestos.

This government initiative to get 100% of tax filing into a digital format was due to take effect from 2018. However, recent announcements confirm that it will be at least a year before some businesses will need to comply.

This is generally good news for small businesses and landlords with turnover under £85,000.

The aim of MTD

MTD aims to solve a timing issue for the Treasury by moving tax into “real time”. This means, rather than reporting for tax just once a year, tax will need to be reported on each quarter, with four returns being filed through the year and then a fifth one at the year end to “wash-up”.

Basically it means going from one return per year to five returns per year. It also means going from two payments per year to potentially five, also.

This more regular reporting system means the taxpayer can maintain their tax affairs more accurately whilst also not letting payment arrears build up.

MTD also means significantly more money for the Treasury, as more regular reporting is expected to reduce the level of non-intentional and intentional errors.

It has been estimated by HMRC that they will reap an additional £500 million in the first full year of operation, from one-off transitional costs. Ongoing, they calculate £280 per business between 2017 and 2021.

MTD delayed for small businesses

MTD is expected to be a cumbersome change for many, particularly small business owners, which include landlords and many freelancers.

There has been heavy criticism from the accountancy and tax profession as well as lobbying from business owners and business groups, which has led to a decision by government to delay the start of MTD for small businesses, those with turnover of less than £85,000.

The criticism has been linked to the lack of time to switch to a new system, as well as a lack of detail regarding how MTD will work in practice.

The delay means an extra year to prepare for MTD, for over 3 million UK small businesses.

New deadlines are as follows:

  • April 2018 – quarterly reporting for all businesses paying income tax and Class 4 NIC, with turnover above VAT threshold, currently £85k for 2017/18.
  • April 2019 – quarterly reporting for all businesses paying income tax and Class 4 NIC, with turnover below the VAT threshold.
  • April 2020 – limited companies to start quarterly reporting

At present, businesses and landlords with turnover under £10,000 will be exempt from MTD.

It is important as a small business owner to know the new requirements under MTD legislation and to keep up to date with changing deadlines. This is how is stands now, however anything can change!

AJN Accountants are specialists in helping contractors, freelancers and small businesses to save tax and time.


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