Within a few years, many taxpayers that are presently required to file a tax return, and most businesses, will be required to file quarterly data with HMRC using the Treasury Making Tax Digital portal.
In which case, the present annual filing obligations will be replaced by quarterly filing obligations.
Paying tax in arrears
Apart from salaried or waged individuals who have their tax and NIC liabilities deducted at the time they are paid self-employed traders and companies pay their tax in arrears.
For example, for the tax year 2021-22, individuals registered for self-assessment pay two estimated instalments – based on previous year’s profits - January and July 2022: and any balancing amount 31 January 2023.
Companies pay their corporation tax bill nine months and one day after their accounting period end.
Which means the Treasury does not get its hands on current tax dues (apart from income subject to PAYE) for some time after the income and profits are earned.
The demands of Making Tax Digital (MTD)
There are two major demands that taxpayers and companies affected by MTD will need to comply with when they are drawn into the MTD regime:
- Upload quarterly data to HMRC.
- Keep their records in an electronic format that will facility the quarterly uploads.
For many taxpayers and traders this will be a simple transition if they have already embraced a digital approach to record keeping – particularly if software has been adopted that is already compliant with MTD technology.
Readers who have not made this transition should consider their options. Please call as we can help.
Will MTD lead to quarterly payments?
When HMRC are provided with information on a quarterly basis it is a short step that they request taxpayers to make quarterly payments on account rather than half-yearly or annual payments in arrears.
At present, there is no indication that HMRC will make this transition, but once MTD is bedded in across the range of taxes (particularly income tax and corporation tax), the change to quarterly payments based on actual data submitted would seem to be the logical next step.
MTD implementation diary
The present implementation dates for MTD are:
- MTD for VAT – already mandated for all VAT registered businesses.
- MTD for Income Tax and self-Assessment – from April 2024 for the self-employed and those with income from property and from April 2025 for most partnerships.
- MTD for Corporation Tax – launch date April 2026 (but may be later).