George Osborne announced Making Tax Digital back in 2005, but HMRC did not provide much information until early 2017. The intention is that all businesses and landlords will make quarterly submissions to HMRC of their turnover and taxable profits. This would replace the need to file annual tax returns.

A more detailed timetable for its implementation was included in the March 2017 budget:

• April 2018 – All businesses and landlords paying income tax with turnover over the VAT threshold of £85,000
• April 2019 – Businesses and landlords under the VAT threshold but with a turnover of over £10,000
• April 2020 – Any business paying corporation tax

This legislation has been dropped due to the announcement of the General Election but this is likely to be only a temporary delay as both the government and HMRC have indicated their intention that quarterly digital reporting will become mandatory.

HMRC argue that quarterly reporting will provide greater certainty and reduce errors due to better record keeping, but the cynical would say the greatest benefit will be to government borrowing. Once HMRC have quarterly figures it is only to be expected that they will expect taxpayers to pay quarterly rather than to pay after the end of the tax year, as they currently do.

Larger businesses and those already submitting quarterly VAT returns may already be using accounting software that will facilitate the digital reporting but it is likely to have big implications for landlords and small businesses who currently use spreadsheets to produce accounts at the year end to file their tax returns. HMRC has indicated they will provide an online filing tool but as yet we have little information as to what this will entail but small businesses and landlords will have to change the way they operate so that they can submit the necessary information quarterly.

All business owners need to be aware of the implications both for record keeping and for cashflow.

Many of the provisions announced in the March budget have had to be dropped as there was not enough time to get them through Parliament before the Election. Unless you spend all your time reading HMRC notices you can be forgiven for being confused so below is a summary of which announcements will be implemented and which have been dropped.

These provisions will still be implemented:

• 2017/18 income tax rates and bands
• Reduction in corporation tax
• IR35 contractors and the public sector
• Abolition of employee share schemes
• Changes to taxation of salary sacrifice schemes
• Increases in IPT rates
• Changes to alcohol and tobacco duties
• Soft drinks levy

These provisions will be dropped:

• Changes to corporation tax loss regime and corresponding anti-avoidance provisions
• Reduction of dividend allowance from £5,000 to £2,000
• Restriction of pension money purchase allowance
• Deemed domicile provisions
• All investment relief provisions (EIS, SEIS, VCT, etc)
• Making tax digital legislation

Whether all these provisions will be re-instated in a post-election budget is debatable, but our Autumn e-newsletter will feature an update.

What is certain is that digital tax reporting is coming and all business owners should use it as an opportunity to review their systems. If they currently only prepare figures annually then they will find it much more efficient to use online accounts software. It will also provide much more useful information about the state of their business.

Normally the VAT amount a business pays is calculated by deducting the VAT incurred on what they buy from the VAT they charge on what they sell. Small businesses have the option to use the flat rate VAT scheme. The VAT paid is a percentage of the gross sales value. The VAT percentage depends on the type of business and is intended to give a VAT payment much the same as that expected to be paid by an average business in that category.

However HMRC has identified that this option is being abused by some businesses who have limited costs. A new 16.5% VAT flat rate will apply from 1 April 2017 to businesses whose VAT inclusive expenditure is less than 2% of their VAT inclusive sales or less than £1,000 pa. This may affect labour-only contractors who have low overheads.

Users of the VAT flat rate scheme have until April to assess whether they will be affected by the new legislation. HMRC has said that they will provide an online tool to help determine whether they should use the new rate.