United Kingdom's Making Tax Digital (MTD) 

Making Tax Digital is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right easily. Individuals do not have to give information that the administration already has.

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Summary 

Making Tax Digital is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs - meaning the end of the annual tax return for millions.
Every individual and business now has access to their own personalised digital tax account and these are being regularly expanded and improved. HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world, modernising the tax system to make it more effective, more efficient and easier for customers to comply.
One of four foundations of this project is “Better use of information”. It will mean that individuals will not have to give HM Revenues and Customs (HMRD) information that it already has, or that it is able to get from elsewhere- for instance from employers, banks, building societies and other government departments. This foundation could be considering as kind of OOP as it means individuals do not need to provide same information which is available in other governments authorities, for HMRC. 

Enabling assets or components

Political commitment
Modernizing the tax system (Government plan)

MTD is a key part of the Government’s plan to transform the UK tax system, with the goal of making it easier for individuals and businesses to get their tax right and to keep their tax affairs current. In time, it will mean the end of the annual tax return for many individuals, partnerships and small businesses.

The Government announced its vision for modernizing the tax system at Budget 2015, and in December 2015 the Making Tax Digital roadmap4 set out how this vision for the future of the tax system would be achieved by 2020.

Legal interoperability
Finance Bill 2017 (Proposed revisions)

Legislation will be introduced in Finance Bill 2017 that will set out:

Digital Record Keeping - how to keep records of trading and transactions digitally, and categorise expenses with help from prompts and guidance in the software. Establishing Taxable Profit - how MTDfB would help establish taxable profit. In particular, exploring when businesses (including self-employed and landlords) should record accounting and tax adjustments for the purposes of arriving at a taxable profit and how businesses should reflect reliefs and allowances. Providing HMRC with updates - how businesses (including sole traders and landlords), would provide HMRC with quarterly updates under MTDfB. In particular, the level of detail the updates must contain, the time periods the updates cover, and when they should be submitted.

‘End of Year’ Activity - how businesses might finalise their taxable profit for a period, including the activity they may need to undertake and how long they should have to do so.

These changes will provide the legislative framework so that businesses will:

• keep track of their tax affairs digitally using software or apps (digital tools). Regulations will specify what records must be recorded using digital tools

• provide summary tax data to HMRC quarterly, using digital tools. The summary tax data will be automatically generated for the business from the electronic records. For VAT, these quarterly updates will effectively replace the VAT return. For Income Tax and CT, these updates will cumulatively build an in-year picture of the business’ tax position for them

• gain a clearer view of their tax position in-year

• provide a finalised end of year position to HMRC of their tax affairs, again using digital tools. This obligation will apply ten months after the fourth quarter referred to above and will crystallise the taxable profits of that business for the previous year. For many businesses, this will simply be a matter of checking and agreeing the total for that year, based on the information which they have provided in the relevant four quarters. For businesses with more complex affairs, this will provide an opportunity to add and apply annualised reliefs and allowances for the period which would not have been reflected in the summary updates
Socio-cultural influence factors
Under Self Assessment, over 10 million customers fill in a tax return to tell HMRC about their circumstances and income. This is a burden for customers and inefficient for HMRC as well: mistakes can be made or the information can be wrong or submitted too late, meaning the right tax is not collected at the right time and HMRC has to take action. This can lead to penalties and interest charges for the customer which could have been avoided.
More effective use of third party information, that is, information provided to HMRC by someone other than the customer or their agent, will reduce the reporting burden on customers and reduce errors, making it easier to declare the right tax.

Data handling / data exchange

Type of data sharing

Actual data

Data handler 

Architecture

Customers (and their agents) will be able to interact with HMRC digitally and at a time to suit them. And digital record keeping software will be linked directly to HMRC systems, allowing customers to send and receive information directly from their software.

Source:https://scoop4c.eu/cases/united-kingdoms-making-tax-digital-mtd

Disclaimer: Please note that this article is a result of the SCOOP4C Pilot Project, not an application of a CEF Building Block.

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