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Making Tax Digital - changes announced in the Spring Budget

Matthew Grief

In the Spring Budget the Chancellor, Philip Hammond, announced that the plans for the introduction of Making Tax Digital have been relaxed as a result of concerns raised to HMRC during the consultation period.

Whilst the delay for smaller businesses is welcome what is clear from the latest announcements is that the plans for Making Tax Digital will go ahead.  Following the budget announcement unincorporated businesses (including landlords) that have annual turnover below the VAT registration threshold (currently £83,000) will now have until April 2019 (an extra year) before they are required to keep records digitally and send HMRC quarterly updates. 

Those unincorporated businesses with turnover above the VAT threshold will therefore be the first group required to comply with the digital tax and quarterly reporting procedures from April 2018.
Mr Hammond confirmed that the reason for the delay for smaller businesses is to “provide them with more time to prepare for digital record keeping and quarterly updates.”

Following the consultation HMRC have realised that businesses with an annual turnover below the VAT registration threshold are less likely to currently keep digital records than larger businesses. Businesses that are VAT registered already engage with HMRC on a quarterly basis online and so are better placed to make the transition to keeping digital records and updating HMRC quarterly.

HMRC have also confirmed that the extra year will allow them to deliver targeted support for small businesses such as guidance and online training although full details of how this will be done in practice are yet to be confirmed. 

The original threshold of £10,000 (i.e. the turnover level below which you are not required to comply with the making tax digital rules) will remain the same.  Therefore, businesses (including landlords) with total turnover exceeding £10,000 will need to comply with the digital service from April 2019.

The updated timetable for the introduction of Making Tax Digital is as follows:
  • April 2018 for unincorporated businesses (including landlords) in excess of the VAT threshold
  • April 2019 for unincorporated businesses (including landlords) where turnover is below the VAT threshold (subject to the £10,000 turnover exemption)
  • April 2020 for companies liable to UK corporation tax
A consultation on the penalties regime for Making Tax Digital will be issued on 20 March, as well as more details on the administration system for quarterly reporting. 

What is clear is that following the announcement of the delay, smaller businesses should not simply ignore the proposed changes but use the additional time to discuss the issues with their accountant and put in place procedures to ensure they are ready to meet the requirements when introduced.

If you have any questions about Making Tax Digital or would like advice about digital record keeping please get in touch.