An Update on Making Tax Digital (MTD)
Making Tax Digital (MTD) was first introduced during the Spring Budget of 2015, its aim was to completely negate the need for an annual tax return. Instead, taxpayers would have all their information loaded directly onto a digital tax account. Alongside this, businesses would only have to worry about paying one simple business tax. The other key benefit announced was the simplification of tax for self-employed people along with the complete removal of the class 2 national insurance contribution.
Despite lots of discussion and various communications from HMRC, including a number of consultation papers that addressed various aspects of the MTD project, none of these objectives have been met. Indeed, back in July 2017 there was an announcement that the scheme would be delayed with MTD for income tax being introduced in 2020 and MTD for VAT being introduced in 2019.
As planned the MTD for VAT did commence in April 2019 but with the exclusion of specific businesses (classed as complex), who were delayed until October 2019. It was also decided that specific public sector bodies would also not be joining the scheme until sometime in 2022. The final implementation of the scheme will see a compulsory digital transfer on all VAT data to happen by April 2021 and the mandating of all VAT registered businesses to comply with MTD by April 2022.
If we look at income tax, this digitalisation involved a far more complex structure. The result is that a taxpayer will have to adopt four quarterly reports and a final report that in most cases will replace the annual self-assessment return. A pilot scheme for this was initiated in April 2018 however, there are currently only a small number of taxpayers and agents participating in this pilot and also only 6 of the major software companies (compliant with MTD) that have provision for recording this.
Although planned for 2017, the MTD for corporation tax and complex businesses (defined as large partnerships with income of over £20m or mixed partnerships that include companies, LLP’s and individuals) has yet been introduced. The HMRC issued a specific consultation documentation in November 2020 (https://www.gov.uk/government/consultations/making-tax-digital-for-corporation-tax), however this consultation will run until 5th March 2021, so in reality it is likely that developments within this field will not be seen until later this year.
The final item to note on MTD is that the reporting of corporation tax will be very similar to that of income tax rather than VAT. There will be a quarterly reporting structure for both income and costs. Companies will still need to assign all their accounting totals for iXBRL when submitting annual accounts to HMRC. Therefore, companies within MTD will have to submit 5 reports to HMRC for their annual accounts, along with the standard 4 quarterly VAT returns and relevant PAYE returns