"Making Tax Digital" - Part Three“Making Tax Digital” – Part Three

Who is likely to be affected?

Well in essence everybody, the “Making Tax Digital” project is being rolled out across the board but it is being rolled out to the smallest organisation first.  Businesses, self-employed people and landlords will be required to use the new service from: –

The Time frames

  • April 2018 if they have profits chargeable to Income Tax and pay Class 4 National Insurance contributions so this is likely to be sole traders and partnerships if your turnover is above the VAT Threshold
  • April 2019 If they have profits chargeable to Income Tax and pay Class 4 National Insurance contributions and the turnover is below the VAT Threshold.
  • April 2019 For VAT purposes for everyone who is VAT registered
  • April 2020 if they pay Corporation Tax (CT) which will be for Ltd companies

Individuals who are in employment and pensioners will not have to use the digital service unless they have a secondary income of more than £10,000 per year from self-employment or property.

At this moment in time it is not clear what the minimum levels of turnover, profit or income will be that ensure you have to comply with the date for “Making Tax Digital” legislation and therefore start to submit your quarterly returns.  In the consultation, the government said it was considering exempting more of the smallest unincorporated businesses (i.e. Sole traders and partnerships) from the requirements to keep digital records and make regular updates to HMRC (i.e. quarterly).  We will see as only time will tell…

The government also said it was considering deferring the mandatory start date for “Making Tax Digital” for business by 1 year for the next tier of small unincorporated businesses and landlords with income above £10,000 , but below a threshold to be determined.  We expect further details to be issued this year before the final version becomes statute later this year.


As you can imagine increasing numbers of business owners will become increasingly worried by this legislation as the impact become clear.  Agents and governing bodies who took part in the consultation are worried about the impact “Making Tax Digital” changes will have.  In less than a year from all the details becoming available, Sole traders and Partnerships will be expected to comply.  These are the businesses who have the least manpower who will be required to start completing quarterly returns to tight deadlines.  The main concerns are:-

  • The speed of the change
  • The capability of the smallest businesses who struggle with digital technology to adapt
  • Burdens on the business and their advisors
  • Data security
  • The cost to business owners some respondents to the consultation claimed it could cost thousands of pounds per business. The truth is until you actually go through the process you won’t know but clearly it is not just the increased cost of software that needs to be considered here but also the extra time, stress, and hassle.  Rather than an annual submission as we currently have, returns potentially similar to submitting your “annual tax return” will now need to be done on a quarterly basis.  So, whether you have an Agent/Accountant or Bookkeeper, the truth of the matter is the costs will increase, maybe not four-fold but certainly increase!  In the last year, we have seen the cost to business owners sky rocket with the introduction of Auto Enrolment on lots of businesses, coupled with “The Living Wage” and increases to the National Minimum Wage.  I’m sure I don’t need to point out that because of the Vote to exit the EU, many business owners have already seen increases to cost of doing business due to the fluctuation in the exchange rates in the Euro and Dollar.
  • Whether businesses would be able to account on the “cash basis” of accounting. It seems likely that businesses will be able to do this but only up to a certain threshold possibly to £150,000.
  • Voluntary pay as you go – previously it was stated that the reason for “Making Tax Digital” was not to pull the payment of tax forward. The consultation did however look at options for businesses, self-employed people and landlords to make payments voluntarily throughout the year.  So this is likely to happen and who knows but maybe in time it will become mandatory!
  • HMRC has said though that if there is a repayment it will not be paid if it is shortly before a liability becomes due if the customer failed to pay on time in the previous 12 months!


It really does make you reflect and ponder whether being a business owner is a good risk to take right now and what is the upside for taking all the risk!  I’m sure many would be start-ups are thinking twice before venturing out on the path of Self Employment.  Whilst the rewards can be great if you get it right, many don’t and the sad fact is many businesses don’t make it past their first year. 

I’m sure “Making Tax Digital” will provide greater clarity for a new business start-up.  It will be very helpful in enabling them to make decisions quickly about how successful their venture is going to be and thus whether to continue.  On a positive note, if you have the new regime from day one it’s much easier to cope with, as it is all you have ever known.

For the rest of us, I’m sure we are in for stormy seas until we have more clarity on what these changes really mean to us and our businesses, let’s hope we can navigate through the storm quickly, and on to calmer waters and sunnier climates.


This article is for general information only and no action should be taken, or refrained from, as a result of this information. Professional advice should be taken based on specific circumstances in each individual case. Whilst we endeavour to ensure that the information contained in this article is correct, no liability will be accepted by KMA Accountancy for damages of any kind arising from the contents of this communication, or for any action or decision taken as a result of using any such information.


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