Last year fears that Making Tax Digital (MTD) is being rushed were expressed. This was echoed in the Whitehall this month and WILL affect the majority of freelancers.
Andrew Tyrie, MP, chair of the Treasury Select Committee tells chancellor Philip Hammond that with MTD, it is ‘better to get it right than stick to a rigid timetable.’ This timely warning follows Mr Hammond’s announcement of the Autumn Statement date.
What is the Making Tax Digital (MTD)?
Making Tax Digital (MTD) is an initiative announced by the HMRC in the March 2015 Budget. The Budget set out to transform the tax system. In December 2016 the government launched the Making Tax Digital Roadmap, which marks how the vision would be achieved. The goal is to turn the HMRC into one of the most digitally advanced tax administrations in the world by 2020.
Who will MTD apply to?
At this point in time, the MTD proposals will only apple to sole traders and partnerships. The consultation does not address limited companies or their directors, which will be covered in a separate consultation later this year.
The HMRC is also proposing that MTD would only apply to those with£10,000 annual income or turnover or over. Therefore, sole traders with one small business that makes under £10,000 a year would be exempt from MTD. However, sole traders with two businesses, both making sales of £6,000 a year have to comply to MTD, as his/her annual income is £12,000.
When will Making Tax Digital start?
MTD is planned to start in April 2018, but for businesses that fall into the smallest scope of the initiative will be allowed a year extension to comply.
In the consultation the HMRC asked for readers’ opinions on whether MTD should be introduced for each business.; The three options are:
A. For its first accounting year starting on after 5th April 2018
B. Taking quarters during the accounting year, for the first quarter stating on the 5th April 2018
C. For its first VAT return starting on after 5th April 2018, if the business is registered for VAT.
How will tax payments work?
The HMRC is not planning to change the current payment deadlines, although they have asked as part of the consultation if they should review the payment on account regime.
MTD may mean that businesses have the right to make ‘voluntary payments’ towards their tax liabilities.
How will penalties work?
HMRC is proposing to abolish the current penalty system for late submission and instead impose a ‘points’ system similar to driving licence penalty points. A four-point level has been suggested, with the slate cleaned after 24 months after the last years point were added.