The government has published its first detailed draft of rules for Making Tax Digital, setting out what information sole traders and partnership businesses will need to keep digitally, and what will form the basis of quarterly returns to HMRC.
The draft rules are the first details the government has published on Making Tax Digital, and will allow business owners to consider whether their existing tax record-keeping procedures will be compatible with the new system, or whether changes will need to be made.
The rules apply specifically to how company owners will need to digitally file income tax and VAT records, stating that for VAT, Making Tax Digital will come into effect from April 2019.
From that date, UK businesses with an annual turnover above the VAT threshold – currently set at £85,000 – will have to keep all their records digitally, and provide VAT return information to HMRC via software that’s compatible with the Making Tax Digital online system.
The rules also stipulate that once Making Tax Digital for income tax is introduced, firms will be legally required to keep a digital record of each and every business transaction.
Certain high-volume retail businesses will be exempt from this requirement, the rules outline, but these firms will be obligated to keep a daily summary of sales in a digital format.
The highly detailed rules also explain what to do if, for example, somebody pays for your product or service in foreign currency that retailers don’t recognise until cashing up at the end of the day.
Introduction of the Making Tax Digital system has been delayed until 2020, but the government will continue its work to get it ready on time.
Tax experts previously welcomed the move to delay rollout of Making Tax Digital, saying that it was sensible of government not to rush the legislative process behind the system.
Tax manager at the Institute of Chartered Accountants in England and Wales (ICAEW), Anita Monteith, said earlier this year: “Making Tax Digital plans remain controversial and need more scrutiny by those who will be affected, and most importantly proper parliamentary debate – a clear roadmap as to how it will work in practice is needed.”
Making Tax Digital changes: HMRC exempts some self-employed entirely
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