HMRC starting to transform the tax system, so that it is more effective, more efficient and easier for taxpayers as well as for the controls done by HMRC themselves.
VAT has been online since 2010 and over 98% of VAT registered businesses already file electronic returns. In 2014 to 2015 over £3.5 billion of revenue was lost due to the mistakes in VAT returns alone.
The new changes means that no business will need to provide information to HMRC under Making Tax Digital for business more regularly than they do now however it will have to happen in the different way.
By 2020, most businesses, self-employed people and landlords will be required to keep track of their tax affairs digitally and update HMRC at least quarterly via their digital tax account. Businesses will be required to use digital tools to keep records of their income and expenditure. HMRC will ensure that free apps and software products are available, but many businesses might choose to use commercially-available tax software packages. Businesses will use software that compiles their tax data as part of their ordinary day-to-day activity, highlighting any possible errors (for instance, arithmetical mistakes or figures which look out of place) and offering prompts for information that might otherwise be overlooked. Once the software has compiled the relevant data, businesses will feed it directly into HMRC systems via their computers or smartphones. Updating HMRC directly in this way will be secure, light-touch and far less burdensome than the tax returns of today.
Making Tax Digital for VAT is beginning as pilot by the end of this year, starting with small-scale, private testing, followed by a wider, live pilot starting in Spring 2018. This will allow for well over a year of testing before any businesses are mandated to use the system. No business will be mandated before 2019. From April 2019 businesses above the VAT threshold will be mandated to keep their records digitally and provide quarterly updates to HMRC for their VAT. This will apply to businesses who have a turnover above the VAT threshold – the smallest businesses will not be required to use the system, although they can do so voluntarily.
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