As part of the Spring Budget, the Chancellor Philip Hammond gave an update at the beginning of March on the plans for rolling out Making Tax Digital (MTD), the scheme by HMRC to make digital record keeping mandatory and implement a number of changes to modernise the tax system.
The key announcement was that many unincorporated businesses will now have another twelve months to prepare for the changes, including moving record keeping systems online and delivering quarterly updates. Those businesses with an annual turnover under £83,000, the VAT registration threshold, will now have until April 2019 before MTD becomes mandatory for them.
This will no doubt come as a welcome extension to the rollout for many, as it will make it easier for small businesses to manage the cost of investing in new accounting software and training for accountancy departments. Businesses with an annual turnover below £10,000 are already exempt from MTD, as are individuals who earn less than £10,000 in secondary income, such as landlords.
The decision by the chancellor to delay making MTD mandatory for small businesses has been praised by many in the financial and accountancy sectors, including the Chartered Institute of Taxation (CIOT), the Association of Chartered Certified Accountants (ACCA) and the Low Incomes Tax Reform Group (LITRG). However, some have suggested that the move to April 2019 may not go far enough, with calls to make the move to digital taxation as flexible as necessary to allow businesses to adapt to the new systems in a way that will not impact negatively on their finances.
Meanwhile, the additional year is unlikely to impact larger businesses which have already begun implementing new systems in preparation for MTD. This means that, despite the deferral for small businesses, 2017 is still set to be a pivotal year in the implementation of digital tax by HMRC. If you’ve not already begun looking at what your business needs to do to prepare for MTD, or even if you have started the process, it’s a good idea to ensure that you’re in a position to move to digital tax sooner rather than later.