Another far-reaching change on the horizon is the HMRC initiative “Making Tax Digital” (MTD).
The basic idea is that HMRCare receiving information electronically from more and more sources (for instance bank interest and earnings subject to PAYE) and plan to use this data to populate a Personal Tax Account (PTA) for each individual. This will provide details of the taxpayer’s estimated tax liability for the year and other details about their tax situation generally.
By 2020, the plan is that all taxpayers will be affected but the first group to be within the new rules will be landlords (we don’t know whether or not this will include landlords of non UK properties but at the moment we are assuming so) and self employed individuals. There is an exception if income from these sources is less than £10,000 per tax year and the budget on 8 March 2017 confirmed that participation of those with a turnover below the VAT threshold, would be delayed until 6 April 2019.
We understand that individuals will need to set up and activate their PTAs through the Government Gateway – and authorise us as agents to have access to these PTAs. However, as details are still being discussed we would not advise trying to do this just yet.
Taxpayers (or us as your agent!) will then have to file quarterly statements of income and expenses during the tax year in question in respect of these sources. We do not yet know exactly what will be involved and the software will not be available until much later this year. However, we understand that penalties will not be charged if these “interim statements” are incorrect or estimated but may be charged if they are late or not filed at all.
Then at the earlier of 10 months after the last quarterly interim statement or 31 January following the tax year end, a final filing/reconciliation will be required by which the taxpayer will verify the data HMRC is showing for him/her and also correct any estimates or errors in the previously filed four interim statements. It is intended that, eventually, this process of filing four statements and one ‘reconciliation’ will replace the need for a Tax Return (as we now know them), but, at least initially, it is possible both Tax Returns and reconciliations may be required.
For the moment HMRC have confirmed that tax payments will not be required on the quarterly filings and existing payment deadlines will be retained.
The MTD plans will also require businesses and landlords to keep digital records (rather than paper records). We will be working with software providers to find a solution that makes this easy for both you and us so that the impact of a quarterly filing is not considered to be overly onerous.