Plans to extend MTD are on the way!….
Presently, the compulsory MTD filing only effects those businesses that are VAT registered with a turnover of £85k and over.
Plans to extend the digitisation of the tax administration further are now under way to affect all VAT registered businesses from April 2022 and to most self -employed traders, including individual landlords from April 2023.
On 21st July, the Treasury set out a first draft of the government’s ten-year plan to modernise the tax administration system.
The plan was always to extend but had been delayed due to Brexit and the Covid 19 outbreak.
The plan to extend MTD to all VAT registered businesses will affect an estimated 1m businesses, who are currently exempt based on their turnover being less than £85k.
This now means that all VAT registered businesses will have to use MTD compatible software to file their VAT returns with effect for VAT periods starting on and after 1st April 2022. They will also be required to keep the VAT records in a digital format.
MTD for Income Tax
MTD was originally planned to start with quarterly income tax reporting, however, it was seen an easier transition to start with those businesses that were VAT registered and already used to submitting data quarterly.
From April 2023, the plan is to ensure all micro self-employed businesses and unincorporated landlords with an annual turnover of at least £10,000 per annum or more, to commence reporting their business activities quarterly rather than annually using MTD compliant software. They will also be required to keep their records in a digital format.
This means that around 4m businesses and individual landlords will be drawn into MTD by April 2023.
MTD For Corporation Tax
A consultation document on MTD for corporation tax is expected to be published in the autumn.
There is still no mention of MTD for complex bodies such as large partnerships and LLP’s. Quarterly reporting for these were seen not being practical as they operate more like companies but are legally partnerships where the individual partners pay income tax. These had not been addressed within the original MTD proposals and so will be interesting to see if is included within the consultation paper being released in the autumn.
What about paying tax within the new MTD plan?
The timing and frequency of tax payments is being looked into to make them more ’real time’ to align with the quarterly reporting of the tax information. This is likely to be part of a open debate regarding this along with other long term reforms being discussed.
However, the current infrastructure surrounding tax payments will need to be changed in order to support such a move, but real time tax reporting under MTD can still be introduced without changing the current tax payments arrangements.
HMRC sees the move as making it easier for taxpayers to pay the correct amount of tax due and harder for those individuals who avoid paying their taxes.
By using digital technology, HMRC will be able to detect those avoiding tax more easily, permit them to intervene much earlier than they can presently which will in all prevent tax loss and reduce the tax gap.
HMRC have however ensured that its services will continue to be accessed by those who are digitally excluded.
Improving the current administration Framework
The current framework which is over 50 years old, is also under review and likely reforms to be made will probably include the merging of the current ‘personal tax account’ and ‘business tax account’. This will enable taxpayers to view their tax position and advise HMRC through a single online account.
Other reforms expected include how taxpayers are identified and registered with HMRC, taxpayer’s rights and the obligations of taxpayers and HMRC.
A call for evidence will be published later in the year to help identify a range of reforms, which are expected to include those outlined above.