Today the Chancellor responded to concerns raised during our recent consultations about the timescale for introducing Making Tax Digital for Business.
Summary of change
The government has decided to provide 3.1 million small businesses with more time to prepare for Making Tax Digital. Businesses (including the self-employed and landlords) that have annual turnover below the VAT registration threshold will have an extra year before they are required to keep records digitally and send HMRC quarterly updates, although they will be able to start doing so voluntarily from April 2017.
Those with annual turnover above the VAT threshold will still be required to keep digital records and send HMRC quarterly updates from April 2018 and the public beta testing will start, as planned, from April 2017. The exemption threshold, previously announced, will remain at £10,000.
Why the change?
Businesses that have annual turnover below the VAT registration threshold are currently less likely to keep digital records than larger businesses. Whereas 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. This was recognised by a number of respondents to our consultations.
The extra year will also allow HMRC to deliver targeted support for small businesses such as guidance and online training.
From April this year, HMRC will begin its Making Tax Digital pilot with businesses and tax agents to learn what works well.
We will expand our initial user software testing with hundreds of thousands of businesses expected to be involved by April 2019. In this way we can all ensure the new software is user-friendly, works well with HMRC’s systems and give individuals and businesses time to prepare and adapt. We will also test our support model during this period.