Policy paper: Making Tax Digital

Updated: Updated to reflect current policy position and timescales.

There is widespread agreement that Making Tax Digital for Business is the right approach for the future. However a number of concerns about the pace and scale of change have been raised. As a result the government has announced that the roll out for Making Tax Digital for Business has been amended to ensure businesses have plenty of time to adapt to the changes.

Businesses will not now be mandated to use the Making Tax Digital for Business system until April 2019 and then only to meet their VAT obligations. This will apply to businesses who have a turnover above the VAT threshold – the smallest businesses will not be required to use the system, although they can choose to do so voluntarily.

The government remains committed to ensuring we can deliver a modern digital tax system for all businesses and their agents, supporting them to get their tax right and reducing the amount of tax lost through avoidable error.

Helping businesses, self-employed people and landlords get it right first time

The majority of customers want to get their tax right but the latest tax gap figures (2014/15) show too many find this hard, with a cost to the Exchequer of over £8 billion a year due to avoidable taxpayer mistakes. In 2014/15 over £3.5 billion of revenue was lost due to these mistakes in VAT returns alone.

A modern tax system, based on digital technology will make it easier for businesses to get their tax right. Reducing the amount of avoidable errors will also reduce the cost, uncertainty and worry that businesses face when HMRC is forced to intervene to put things right.

The logic of digitising the tax system is widely recognised and millions of businesses are already banking, paying bills, and interacting online. Digitising routine business tasks such as record keeping is the next step and is one many businesses have already taken.

The first businesses have already started keeping digital records and providing updates to HMRC as part of a live pilot to test and develop the Making Tax Digital service for income tax and NICs and we will continue to expand this pilot.

Businesses will not now be mandated to use the Making Tax Digital System until April 2019 and then only to meet their VAT obligations. This will apply to businesses who have a turnover above the VAT threshold – the smallest businesses will not be required to use the system, although they can do so voluntarily.

Our overview of Making Tax Digital contains more detail on our plans.

Digital support

HMRC already provides a wide range of digital services and support for businesses and the self-employed. For example, over 1 million small businesses accessed HMRC’s digital help and support last year. Transforming the experience for small business explains the types of digital support available.

Smarter experience for individuals

The Personal Tax Account brings together each individual customer’s information in one online place. It allows customers to access the service from a digital device of their choice and at a time that suits them. It allows them to register for new services, update their information and see how much tax they need to pay.

Log-on to your personal tax account – it only takes a few minutes

HMRC is working closely with third parties to explore how more effective use of third party information can contribute to the modernisation of the tax system. This will mean customers never have to tell HMRC about information it already has. This was considered during the formal consultation period.

In 2017, we will start to use PAYE information to make in-year adjustments to customers’ tax codes in real-time. This will avoid both under and overpayments from occurring by the end of the tax year. Customers will be notified when the right tax is not paid and, through their Personal Tax Account, HMRC will provide a clear explanation of how the tax has been calculated.

Source: HMRC