On 21 July the Government set out a ten-year plan to modernise the tax administration system, which includes restarting the making tax digital (MTD) programme.
MTD for VAT
Currently the MTD regime is compulsory for VAT registered businesses who are required to be VAT registered as they have a taxable turnover of over £85,000. All VAT registered businesses will have to use MTD compatible software to file their VAT returns, for VAT periods starting on and after 1 April 2022. They will also be required to keep the VAT records in a digital format.
MTD for Income Tax
The Government has set a goal of April 2023 for micro self-employed businesses and unincorporated landlords to commence quarterly reporting through MTD software, and to keep digital records. Around four million unincorporated businesses and landlords with annual turnover exceeding £10,000 per year will be drawn into MTD.
MTD for Corporation Tax
We expect a consultation document on MTD for Corporation in the autumn.
Paying the Right Tax
The second strand of the tax administration strategy is to explore the timing and frequency of tax payments, to make them more “real time” to align with the reporting of tax information. It admits that the technology infrastructure will have to be changed to support such tax payments.
HMRC says it wants to make it as easy as possible for people to pay the right amount of tax and make it harder for taxpayers to avoid paying tax. The Government believes that using digital technologies, which permit HMRC to make interventions earlier, will prevent tax loss and reduce the tax gap.
The third part of the strategic plan addresses the UK’s creaking tax administration framework, much of which is over 50 years old. The Government will publish a call for evidence later in the year to help identify a range of reforms to include:
- Obligations of taxpayers and HMRC
- Penalties and sanctions for failing to comply with obligations
- Taxpayers rights and safeguards
- How taxpayers are identified and register with HMRC
- How tax liabilities are identified amended and assessed
The plan says “Taxpayers should be able to view their tax position and tell HMRC anything it needs to know through a single online account.” This implies that the personal tax account and business tax account will be merged.