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Making Tax Digital

At Budget 2015, the Government set out their proposed ‘Making Tax Digital’ project – plans to move to a fully digital tax system by 2020. As part of their implementation plan, HMRC have published six consultation documents, which include the tax issues facing self-employed individuals.

At this stage, the Making Tax Digital proposals only apply to sole traders and partnerships that have an annual income or turnover of more than £10,000 per annum – the consultation doesn’t address limited companies or their directors, which will be covered in a separate consultation later this year.

Making Tax Digital will move away from having businesses file four tax returns every year. Instead, they will send summary data to HMRC as often as the business requires, introducing greater flexibility especially for seasonal businesses.

HMRC has confirmed that they will not be providing their own bookkeeping / accounting software and that the use of “digital record keeping software that links to and updates business’s digital accounts with HMRC??? will be mandatory, except for taxpayers who are exempt.

In the consultation, HMRC has asked for readers’ opinions on whether Making Tax Digital should be introduced for each business. The three options are:

  • For its first accounting year starting on or after 5th April 2018, or
  • Taking quarters during the accounting year, for the first quarter starting on or after 5th April 2018, or
  • For its first VAT return starting on or after 5th April 2018, if the business is registered for VAT.

The consultation period is open now and will run to midnight Monday 7 November 2016.