Making Tax Digital is a new system being adopted by the HMRC to simplify and accelerate the processing of tax filings, but there is a great deal of confusion over who will be affected and what their new responsibilities are. The plan was first announced in 2015, but has gone through a number of setbacks and delays in implementation. The latest update from the government indicates that the new regulations will go into effect in April 2019, at the same time as the changes to VAT and customs duties arising from the Brexit process.
The basic premise of the Making Tax Digital initiative is to collect all of a business' tax information in one centralised place with the goal of making the entire tax system faster and more efficient. If you're interested in reading the official roadmap for the implementation process, you can visit the HMRC page for the official policy paper here.
Not all businesses will be affected by the new system, which will focus primarily on businesses that are VAT registered and have a yearly turnover that exceeds the required registration threshold of £85,000. Businesses that have voluntarily registered for VAT below this threshold will not be affected, although they will be able to voluntarily make Making Tax Digital (MTD) reports.
Additionally, businesses with high turnover that are not currently required to register for the VAT system (such as doctors, dentists and residential landlords) will not be required to participate in the new MTD system.
For businesses who are subject to the MTD regulations, there will be two main responsibilities: businesses will have to keep digital records for the purposes of their VAT submissions, and they will have to file these records using software compatible with the MTD system within five weeks of the end of each VAT quarter. Businesses will also have to keep copies of all their records for the previous six years.
Of course, it's entirely possible that the Making Tax Digital initiative will be changed in the coming months during the consultation period, and the implementation dates may be changed or postponed as they have been in the past. The digital nature of the filings means that software developers will need to have advance notice in order to develop new software programs or adapt existing ones to be compatible with the MTD system, and this may also have an effect on the final implementation date.
No matter what the timeline turns out to be, it's wise to be prepared with an electronic record keeping system that will provide potentially affected businesses and self-employed individuals with an easy way to transition from the old system to the new.
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