Making Tax Digital - General

What is MTD?

'Making tax digital' is a fundamental overhaul of the administration of tax affairs in the UK. MTD is a Government directive intended to 'digitalise' all UK record keeping and bring up to date the UK tax system to reflect current uses of technology.

This seems to be a lot of work – what is the point in MTD?

According to HMRC there are four 'foundations' to MTD:

  • Better use of information: e. taxpayers will no longer have to re-report information HMRC already have from other sources (such as income received from employers and banks).
  • Tax in real time: the idea being simplification for the taxpayer of their affairs, such that they can see their expected tax bills as the year progresses, rather than some months after the event.
  • A single financial account: i.e. a single online dashboard which shows all tax affairs in one place.
  • Interacting digitally with taxpayers: a digital tax system should enable smoother communication between HMRC and taxpayers / their agents (and therefore reduce demands on HMRC staff).

Realistically there is a perception that a significant proportion of UK tax loss is caused by 'avoidable taxpayer mistakes' and that consequently the introduction of an entirely digital process should drastically reduce this. The validity of this presumption remains to be seen!

Furthermore, with the current Spending Review HMRC are under pressure to sustainably reduce their operating costs. We have already seen a move towards reducing staffing overheads via the introduction of mandatory online filing (see recent changes to VAT, corporation tax, PAYE and incentivisation for personal tax) – clearly MTD is simply a further (massive) step towards the same objective.

Are all taxes affected?

Eventually all major taxes will be affected – yes.

Under current plans MTD will become compulsory for VAT from April 2019. VAT is very much a testing ground however, and it has been confirmed there will be no other mandatory extension of MTD for any other tax before April 2020. This is however expected to be a delay, not a cancellation.

Other aspects of MTD are already becoming live regardless of this, which can be accessed on an optional basis – for example some agents can now pull self-assessment tax return data via MTD enabled software from HMRC.

Will this change when we report our taxes?

With the introduction of MTD for VAT – generally not. The initial introduction is still on a quarterly basis – see our separate VAT guide.

However, with a push towards 'real-time' taxes expect much more regular (quarterly) reporting of income and corporation tax affairs in the future. We will update as the full requirements become clearer.

Will this change when we pay our taxes?

Currently – no.

Longer-term – probably. With HMRC able to identify expected tax liabilities on a much more 'real-time' basis it is easy to envisage a 'pay-as-you-go' tax administration. Again, we have already seen similar changes for non-resident capital gains tax.