HM Revenue and Customs (HMRC) has announced plans for Making Tax Digital (MTD), which will see businesses and self-employed people moving to a digital service for their tax returns.
The new changes mean that companies with profits chargeable to income tax and pay Class 4 National Insurance contributions (NICs) will need to use the service by April 2018, while it will be April 2019 for those who are registered to pay VAT.
On the other hand, companies that pay Corporation Tax will begin using the new service by April 2020, while individuals in employment and pensioners are not required to use MTD unless they have secondary incomes of over £10,000 annually from self-employment or property.
As part of the consultation, the government emphasised that it was looking at exempting more of the smallest unincorporated companies from the plans. Along with this, it is considering making the start of Making Tax Digital for Business (MTDfB) by one year for unincorporated companies and landlords with yearly incomes of more than £10,000.
However, final decisions will need to be made before the rules are properly announced later in 2017.
To help companies adapt to the changes, software will be made available free of charge to a number of small businesses, and those that are unable to use the new digital process will not be forced to.
Jim Harr, director general, customer strategy & tax design at HMRC, explained: “There were more than 3,000 responses to the consultations and I’d like to thank everyone for their time and effort.
“We are pleased that there was a broad welcome for the principle of Making Tax Digital and HMRC developing a transparent and accessible tax system fit for the digital age.”
Mr Harr explained that the appetite for digital services is on the up with traditional paper-based processes proving to be ineffective in the 21st century where a high number of companies prefer to use electronic alternatives.
In order for businesses to keep up to date with changes in legislation, it is key that they have someone as part of their team who is well informed of all the latest developments in tax legislation, or they could face significant fines.
Freelance accountants in particular can make a positive difference, helping to ensure that all of the finances are properly audited and up to date with the latest rules.