Making Tax Digital update - stripped back and put back

By Alex Fish, Tax group
020 7490 7766

On 13 July 2017 the government announced an update to its Making Tax Digital (MTD) legislation. The new rules significantly relax the original guidelines while also delaying them. Given that there were many concerns with the initial proposals, this is welcome news.


Our previous blog ‘Making Tax Digital – A Pixelated Vision’ discussed the original proposals which briefly were as follows:

  • Businesses including sole traders, partnerships and landlords but excluding companies would, from April 2018, be required to keep digital records and file quarterly submissions of their income and expenses
  • There was a deferral until 2018 for taxpayers with turnover below the VAT threshold however this factored in the total of all their businesses if they had more than one i.e. a taxpayer with a sole-tradership and rental profits. There was also an exemption for taxpayers with turnover below £10,000 and a deferral for partnerships with turnover above £10M
  • VAT compliance would be included within the regime from April 2019 and companies from April 2020

New proposals

Under the new timetable to be introduced in the autumn, HMRC have announced the following:

  • Only businesses with a turnover above the VAT threshold (currently £85,000) will be required to keep digital records and only for VAT purposes
  • They will only need to do so from 2019
  • Businesses will not be asked to keep digital records, or to update HMRC quarterly, for other taxes until at least 2020

This means that no accumulation of turnover over two or more businesses needs to be considered and that businesses with turnover below the VAT threshold will not be required to use the system although they can choose to do so if they wish. Businesses will also be able opt in for other taxes.

The government has also given assurances that it will not widen the scope of MTD beyond VAT before the system has been shown to work well, and not before April 2020 at the earliest. This will ensure that there is time to test the system fully and for digital record-keeping to become more widespread. 

What does this mean for you?

As VAT already requires quarterly filing, no business will need to provide information to HMRC more regularly than it already does. HMRC has announced that it will open a VAT pilot scheme by the end of the year on a limited basis and this will be opened more widely by Spring 2018.

All businesses and landlords will have at least two years to adapt to the changes before being asked to keep digital records for other taxes.

However, it is inevitable that the scheme will be introduced for all taxes eventually and this therefore presents a great opportunity to make an early start on the migration to cloud accounting if you are not already using it. For more information please read our article in the Summer 2017 edition of Fine Lines.

If you have any questions regarding Making Tax Digital, please speak to your contact partner or to Phil Moss or Alex Fish in the tax group.

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