One of the biggest changes to the UK tax system – Making Tax Digital – will take effect in April 2019. Sooner than you think your clients will reach out to you with questions about Making Tax Digital, if they haven’t already. It is already generating a lot of questions and concerns for individual taxpayers, and as an accountant it’s important that are there for your clients when they come looking for support.
Making Tax Digital– a brief history
In early 2015 Making Tax Digital was first announced by the government as an initiative to improve the effectiveness and efficiency of the UK tax system. The government’s plan was to transform the tax system by 2020 and introduce digital recordkeeping and quarterly updating for businesses, self-employed and land landlords for income tax self-assessments, VAT, and corporation tax.
The original timeline set out by the government proposed a phased introduction of MTD for businesses between 2018 and 2020. However, after some consultations with the industry (and Brexit), the government announced in July 2017 that it would delay the introduction of MTD by April 2019, and at first it would only apply to businesses whose annual turnover exceeded the threshold of £85,000. It is expected that the initiative would be extended to individuals in 2020.
So what changes for Individuals?
Every individual in the UK who pays tax already has a personal tax account. It was launched in December 2015, and allows taxpayers to access and manage their tax affairs online. By September 2016:
- over 600,000 tax payers received an income tax refund directly to their bank accounts,
- more than 100,000 individuals updated their company car details online, and
- nearly 1m people renewed their tax credit claims before the July 31 deadline
A personal tax account, allows individuals to access their tax affairs to review records and carry out account management. In order to access a personal tax account, individual tax payers need a Government Gateway account, a NI number and identity proof.
From April 2018, all UK individual tax payers have had access to a personalised digital account. The account can be used to:
- check Income Tax estimate and tax code
- complete, send and view a personal tax return
- claim a tax refund
- check and manage tax credits
- review State Pension
- track tax forms that have been submitted online
- update Marriage Allowance
- tell HMRC about an address change
- update work benefits, for example company car details and medical insurance
- find National Insurance number
More services will be added by HMRC in the future.
Making Tax Digital Overview – the future
HMRC’s aim is to phase out self-assessment, and replace it with a personal tax account, so that individual tax payers can update and manage their tax affairs digitally. Eventually, individual tax payers will no longer have to complete an annual return. The idea is that the online personal account will be pre-populated with information HMRC already holds, meaning the information doesn’t need to be submitted on an annual account. It includes, salary and pension details and bank interest. Interestingly, HMRC is not in the position to pre-populate information such as dividend interest.
At present HMRC has no intention to change the dates tax is payable, if not collected at source. Which means the payment date of 31 January, and 31 July (if payments on account are required), will remain. However, taxpayers can choose to make more frequent payments on a voluntary pay-as-you-go basis. HMRC is currently looking to introduce incentives encouraging PAYG payments on self-assessment tax.
What can accountants do now – the present
As a professional agent firm you will need an Agent Services Accounts to access new HMRC login services. You can get an account here.
If you have business or landlord clients for MTD for Income Tax, you will need to send quarterly summaries of their expenses to HMRC using MTD compatible software. In response, HMRC will provide an estimated tax calculation based on the information provided to help them budget for their tax. HMRC is currently building functionality so that landlords and businesses can send information about all types of income using software. You can sign up these businesses and landlords for the MTD for Income tax pilot on a voluntary basis. You can find out more informaiton on how to get involved here.
Checkpoint: If you have any clients who receive income from self-employment or property, with an annual turnover below the threshold which has not been set (£10,000 was suggested during the consultation process), they will be exempted from MTD. It’s very likely the threshold will be applied ot the total turnover form all sources of self-employement and property income.
Start planning early
Because self-assessment tax is changing, tax planning is more important than ever for your clients. One of the most important things you can do for your clients is set up a meeting with them to do some tax planning. Your clients expect you to guide them through the complexities of the move to digital and how they will be personally affected. During the meeting, you could look at their tax situation and find out the opportunities they have to take advantage of anything in their favour. Individual tax clients may be interested in changes made to property taxes, pension contributions to soak up unused pension relief, dividends, gifting, child benefits, CGT, married couples allowance, and whether it will be worth investing in ISAs.
Get ready for digital tax
With digital tax on the horizon for your clients, you can’t be unprepared for the next tax season. It’s up to you to help them mitigate the changes and maximise the benefits of PAYG payments. The sooner you get them ready, the better it is for your clients and therefore you accountancy business.
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