The government's Making Tax Digital service will soon affect individual tax returns and corporation tax returns and is due to impact on most business VAT returns from April 1st 2019. If you aren't yet aware of the proposed tax changes, our brief guide will bring you up to speed.
Self-Assessment Returns Under The Making Tax Digital Reforms
The legal requirement for digital tax returns for individuals is not yet in place and is proposed to take effect from April 2020 at the earliest. Digital self-assessment returns will entail a continual stream of data to HMRC, rather than the annual self-assessment which is currently required by January 31st each year. The government says their digital returns will eliminate around £9bn worth of errors made by individuals or businesses.
At present, private landlords and self-employed business owners can register for a voluntary digital self-assessment pilot scheme that's being trialled by HMRC. However, plans to roll out the entire service have been put on hold until at least 2020 due to some concerns expressed by individuals.
The Personal Tax Account is another digital initiative from the government which allows any UK individual to access information about their tax situation and the records held by HMRC. The pre-population of some data contained in personal tax accounts has been sourced from banks and building societies since the 2017/18 tax year.
Many businesses still make manual VAT returns or rely on spreadsheet data for the completion of quarterly VAT returns. Once digital VAT returns are completely in place, all data will be sent to HMRC automatically via their automated API platform. What's more, all relevant data needs to be fully documented within appropriate accounting packages. This means manual copy and paste actions will no longer be acceptable.
There is not a great deal of available information regarding the proposed digital tax returns that individuals will need to make. However, it has to be assumed that approved software will also need to be utilised for these returns and all financial data will automatically transmit to HMRC via their API.
In conclusion, digitally transmitted financial tax returns for individuals and businesses should eventually make life easier. However, nobody likes change! The government stresses that Making Tax Digital will reduce errors, make tax simpler and increase efficiencies for everybody. So, it's important to take a step back and wait for all the associated teething problems to iron themselves out. Get in touch with David Howard if you would like expert advice on any issues connected to digital tax returns.