Money Box Live: Making Tax Digital Guide

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Hello, welcome to the new series of the Money Box Live Podcast. Back to answer your questions about your money. And our first topic is something you have been bombarding us with emails and voice notes about. Today we're bringing you our guide to making tax digital. Soul traders, which include a huge variety of people, from window cleaners to copywriters, as well as landlords, will begin to report their income and expenses to HMRC every three months instead of once a year.

It is a massive change, and it's something a lot of you have questions about. And we should say, not everyone is calling it making tax digital. I call it making tax difficult. And we'll hear more from Catherine soon. So what is it? Why is it? And how will it work?

Jonathan Athau has been leading this project at HMRC and is here to tell all and answer your questions. Jonathan, your official title is Director General of Strategy and Policy. You've been spearheading this change. You won't be surprised that we've had a lot of questions. No, it it is a big change. It's probably the biggest change to self assessment we've had since it was introduced thirty years ago. So not surprised that there's lots of uh lots of reaction to the changes we've got planned.

So, making tax digital is a new way of filing for sole traders and landlords. It's coming in first for anyone with income of more than£50,000. So that's affecting about eight hundred and sixty thousand people, then over the next few years the threshold's going to fall and eventually about three million people will come under the new system. Just explain what making tax digital is.

Yes. So uh as you've said in your introduction, it applies to self-employed people, so sole traders and landlords, those with property income. There are two key elements that that people uh probably are familiar with. One is that we'll ask people to be keeping digital records on software. So use software to record your income and your expenses. And then every quarter You update uh HMRC.

Press of a button will update us uh with a summary of those income and those expenses. Those are the big changes. At the end of the year, you still have a tax return to do, but because you've entered information through the year, that should be uh less burdensome for people at the end of the year. Okay, I want to share our first question and I should say we had a lot of variations on this question from listeners.

Hi, my name is Emer. My question is why? Why are self employed people like me, who works as a freelance editor and writer, Byddwn ni'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i chi. And Jonathan Andrew also got in touch to say do not let him leave without giving at least three benefits of making tax digital. So can you tell us why it's happening, what the reason is behind the change, and what you would say are the benefits?

So so there's a there's a number of aspects to this, but let me pull out a few for you. Firstly, at the moment we uh the way self-assessment works. It can be nine or ten months before you complete your self-assessment return. In that period, we know lots of people either lose records or fail to keep them properly in a good way. So what we're trying to do is encourage people. to keep records closer to real time and using digital records less likely to be less likely to be lost.

The second uh thing we want to do is actually lots of people are already using software and we want to integrate tax into the software people uh people are using. And lastly, in terms of benefits, what we've seen from making tax digital for VAT is that people found they had a better understanding of what was going on in their business because they had much more up-to-date and easily accessible records of their income and expenses.

And for making it for income tax, that will allow them to have a better understanding of what their tax position is going to be at the end of the year. But from HMRC's perspective, you think that there's income you're missing out on, tax payments that you're missing out on that you you will get more of? Yes. So this particular group group of taxpayers is one where we do see quite a big tax gap. So that's the difference between what the money we should get in if everyone complied.

uh and what we actually get in. So we think there's about six billion pounds every year uh that's missing. from this group of c customers. And a lot of that is down to record keeping. We want people to be keeping records, better quality records, closer to real time. And that will help people get their tax right.

Okay. As you've said, this will involve more regular filing every year, four quarterly updates, and then the final return. So that's five. But some people have been in touch to say they're going to have to file even more than that. Here's Sarah. I'm a sole trader and a landlord. I know I will need to do a few. four.

four quarterly returns as a sole trader and four different quarterly returns as a landlord. What I'm unclear about is whether I have to do a balancing return for each of those activities. and then do a self-assessment return for things like savings interests My understanding of reading the information is that I will have to do eleven tax returns a year. Jonathan, is Sarah right? Eleven tax returns a year.

So firstly, a quarterly update is not a tax return. It's simply a summary of the information you've already put onto your soft software. If you keep software. And we've heard from a lot of people who just keep a drawer of receipts and then have one week in January where they just get it all out. Uh and in some ways that's some of the challenges we face with uh does everything get into the t into the drawer? Is everything properly kept?

when you get to that end, you know, it's it's almost I said nine or ten months after the end of the year, uh, do you realise you've missed something or forgotten something? That's the challenge w we're facing. But if I can go back to that that particular particular question.

What we're doing, we're following how self-assessment works at the moment. So you report at the moment your self-employment income and your property income separately. So that's why you uh would report it separately every quarter. Now this will depend on the software you have. Uh we've seen some software packages where you put all the information in and you've just pressed two buttons, one for your uh self-employment income and one for your property income. Then at the end of the year.

Um, all of that information is available to basically pre-populate your tax return. So we can pull that information through. And when you get to the end of the year, your self-employment income and your property income will already be in your tax return. You then add any information you uh any other income sources such as dividends or savings and that then finalizes your tax return. So that's how it works. You basically are dripping information into your tax return through the year.

And then at the end of the year, you can add in anything else, make any other adjustments and finalise your tax position. Well we're gonna come on to the software shortly'cause we're getting quite a lot of messages from people who aren't

I entirely happy about that. We're also getting a few messages from people who don't agree with the benefits that you've outlined. So we've got we've got another twenty minutes uh to to bring them round, Jonathan. Um but joining you today to answer our listeners' questions and

maybe give you a bit of a break is Emma Rawson, Director of Public Policy at the Association of Tax Technicians, which is the professional body for about 10,000 tax advisors. Emma, thanks for being with us. What are your members saying? How are they feeling? So our members have been on a little bit of a journey over the last couple of years. Um, as Jonathan said, this is a big adjustment. That's not just true for taxpayers, it's also true for those working in tax.

It's a real change to not just how taxpayers interact with HMRC, but also how they interact with their accountants or their advisors. So taking your example of the person who puts everything in a drawer and gets it out once a year, we can't do that anymore under MTD. There's going to be more touch points, more services.

So our members over the last couple of years have been on a journey of sort of getting ready. There's a lot of things they need to do behind the scenes, thinking about software and things like that and learning the rules.

But they are in a good place generally at the moment, which is I think a positive thing, because if you look at that first group of taxpayers coming in in April this year, seventy five percent of them have an accountant, it's estimated already helping them out, or an advisor helping them out. So by getting our members ready in advance we're sort of helping uh everybody else get along the way.

We've had some emails from some accountants, including Andrew, who emailed to say he's invested two hundred and eighty thousand pounds getting ready for making tax digital. He claims some accountants have retired early to avoid it. Uh but Jonathan, um let's talk about that first wave of people who have to sign up this year. They're being encouraged to register by April the sixth, so very, very soon.

HMRC told us only one hundred and forty seven thousand people have actually done so. Out of eight hundred and sixty thousand, what's going on? So uh firstly we are that that number is increasing all the time. I was looking this morning uh at the numbers and we had a hundred and eighty five thousand. So we're seeing large numbers. But we are a long long way off. But the key thing is

For us, uh, while it starts on the 6th of April, what will be the real test test for us is August when we have that first quarterly update on the 7th of August. That will be when we really see how many people have already registered, got their software, got everything, got everything sorted.

The other thing I would say is in this first year, we're not charging any penalty points for missing a quarterly update. So we know it's probably for some people it's going to take them a while to get up to speed with this. Uh and we're allowing for that by not having those penalty points in the first year.

Okay. Well Amanda's contacted me on social media. She might be relieved to hear that, because she says she wants to understand why she only found out about making tax digital from Facebook. How are you informing people? So um f firstly, we're using uh around I think uh three quarters of the people in in this group are do have agents, so accountants or bookkeepers. So we've been using them to uh talk, uh, you know, making certain they understand what's going on.

We've also written, I think, now three letters uh to anybody who uh uh was in in scope. We only found out exactly who's in scope when people filed their tax return in January, so we can only be definite uh that they were in scope. uh now. And we've also been running uh campaigns uh and uh a publicity campaign uh online, particularly focused on uh some of the sectors uh that uh where we know people uh will be eligible for making tax digital.

And yet I was reading some research from January this year from Sage and Ipse, which says only about thirty per cent of sole traders have meaningful awareness of making tax digital for income tax. That's really low for such a big change and you must be worried that you still only signed up 185,000 people.

So so uh i this is w in line with our our our pro our expectations. We know when it comes to tax, a lot of people leave things to the last minute. Um, you know, that's what we see in January when we you know, people have had nine or ten months but we still see people

uh peaking in January. So we know people are going to leave things to the la last minute. We know it's a big change. That's why we've put this easement in in terms of in terms of penal penalties. And we are seeing very good and increasing levels of awareness. Partly we didn't want to get awareness uh campaigns going until people could actually take action. Um and now people are signing up. Now is the time we've really turned up uh those awareness campaigns, we're writing to people.

to make certain they understand their obligations. And we've been engaging with organizations such as Emma's to really make certain everybody uh everybody who needs to know does know.

Okay, let's talk about the software that you've mentioned. So in order to upload these digital records of income and expenses, as you say, taxpayers will be using third-party software, and the gov.uk website has a page where people can check for approved providers.

The Moneybox team had a bit of a look at that. Essentially you tell the search engine a bit about yourself and it creates a list of providers that are suitable for you. So we did a really simple search. We found 60 products. 17 of those were labelled as free. But a lot of you have been getting in touch about this, including freelance screenwriter Gillian. They want to do away completely with the online portal and expect me to source and understand third party software.

They keep saying it's free. It's not. When you actually look into it, these softwares are only free if you also have a business bank account at cost from various providers. None of the providers as of yet have given clear indications of actually what this software does, what it will look like, how I'm supposed to input the data. Am I supposed to scan every receipt? Am I supposed to just data input it, which is not my skill set. You I write cartoons.

the thought of using anything approaching an Excel spreadsheet gives me a panic attack. This approach feels geared towards people who already use an accountant or already have in house people doing this stuff who require spreadsheets because they've got three or four shops or because whatever their business model is. I'm just a freelancer.

Thanks very much to Gillian for that. Jonathan, we had a lot of people contact us with similar concerns. Do taxpayers have to use third party software? Can they manage this themselves? So uh we have set out that we want we want people to be using software. Now that's for a number of number of reasons, but a key one amongst them is there's a wide variety of uh people eligible for MTD in this first uh first phase. And actually

we're not going to be able to design uh certainly as as HYC a system that will be able to cater for everyone. What we want to do is make the market can respond. And as you've as you've said, um there are a number of uh free offers uh there or freemium offers. Um, some of which are limited uh in terms of their uh uh functionality, but there are free offers there for people with simple affairs.

So fre freemium freemium essentially means it's it's free to kinda sign up to, but then if you want the extra benefits, the stuff that makes it more usable, you have to pay. We've had a lot of emails from people like like Tim who says my experience is it tells you repeatedly how easy it will be to use, how inexpensive it is, but when you sign up, half the promised features don't exist yet.

So look, we we've looked through all that software. We we do try and help people understand what they need to do. Sorry. Um Oh. Sorry, apologies. Drink of water, entirely fair. In in d dry throat there. So we have uh, as you said, put a page up that helps people understand what the software is there to do, what it can what what it can do do for you. And then there'll be a link to the software provider.

Um and people can then go and look for the look for themselves. So we are trying to help people find the right software for their own circumstances. As I said, recognising there's quite a lot of diversity within that group uh of people brought in from På Circle Key älskar vi att fira våra kunder. Och vi har hittat det perfekta sättet. Med Cirkel Key X. Det är en ny belöning. اشتركوا في القناة Woohoo!

Sedan vi började jobba med Assats inom ekonomi och lön har vi fått ökad kontroll och jag känner mig... Säker på att vi gör rätt. Det gör att jag tryggt kan fokusera på affärsverksamheten istället. Assets. Redovisning, revision och lön för dig som tänker nytt.

Now uh we've had a lot of listeners uh concerned, including David, saying if the service is free then it's limited in some way or it might charge in the future. And I suppose the question is, if if the taxpayers aren't paying for it, who is? Rydyn ni'n gwybod, mae'n gwybod, mae'n gwybod, mae'n gwybod, mae'n gwybod, mae'n gwybod, As you mentioned, there are some banks who've created functionality for making tax digital um already. So

Some of the banks are seeing uh advantages in getting into this market. And we're also seeing, as I said, software vendors really starting to push out new features and new functionality. And apologies, I will have to have another swig of. No, no, you go ahead. You go ahead. Let's bring Emma in. Emma, we know at least one bank is actually offering a sole trader account that comes with a making tax digital tool. Are you seeing a lot of that?

Yeah, we're seeing a lot of interest in these sort of lower cost and the more easier options as it were. So uh I know the caller earlier mentioned spreadsheets, lots of interest in that. Uh just to clarify, you absolutely can use a spreadsheet under Making Tax Digital to keep your records and just manually enter the information into that spreadsheet. But you will need a little bit of software that will submit the information from your spreadsheet into HMRC.

I think the problem is that although there's a wide range of software which is great in terms of choice, it can be very daunting if you're coming at this fresh. So actually you said, you know, you narrow it down, you've still got nineteen twenty products. So I would say that it's definitely one area to have a look at and I would definitely caution anybody looking at getting software for themselves to not automatically go for the free or the cheap option.

Rydyn ni'n ei wneud ei wneud ei wneud ei wneud. Rydyn ni'n ei wneud ei wneud ei wneud ei wneud ei wneud ei wneud ei wneud ei wneud ei wneud ei wneud ei wneud ei wneud ei wneud ei wneud ei wneud ei wneud ei wneud ei wneud ei wneud ei wneud ei wneud ei wneud Okay. Jonathan, a lot of people would like to know why HMRC didn't simply make its own or just expand the existing tax return portal.

So a a part of the reason here is we want to recognize well, we recognise that there's a lot of diversity here. Could we design a product that meets everyone's needs? No, that would be really challenging for us to us to do given, as I said, the different uh elements of the income tax system.

What we wanted was the market to respond, to provide that range of products from simple products, some of which are free, through to much more complex products for landlords or for people who are landlords and self-employed or who have much more complex tax affairs. So it was really a question of letting the market, uh setting the market up to provide a good range of products, and that's what we're seeing at the moment. Okay, let's hear from Tony next. He's worried about security.

Can I trust the intermediaries that the HMRC is imposing upon me? I mean they're not imposing a specific intermediary, but they're saying here's a range of intermediaries. companies I don't know from Adam and I have to choose one of those and I have to upload my data to them and then have them up transfer the data to

HMRC, my very personal financial data, like my taxpayer reference, my national insurance number, my income details. I'm trusting third parties with this who I have no previous relationship with, but it's being enforced upon me. Jonathan, what about Tony's point there? I mean there have been plenty of high profile hacks recently. Yeah, so so firstly, software is not new. As I said, some people are already using software to

uh comply with their tax obligations. If you are uh, you know, paid as an employee, there's there's there's uh probably a third party uh in uh software provider in uh in that system uh working uh for for your employer to talk to us. So this is not uh an entirely new market. We take our security very, very s seriously. We are always very concerned, particularly around for example, scams.

uh and for example people trying to impersonate hmc. So we're very alive to the various risks here. We do uh before uh we put somebody on our software pages, we do uh look to make certain products meet our meets our standards. um uh and and uh can be relied relied upon. But again, you know, again, so security is is a is a more general issue across uh digital services, not just those where they're connected with tax.

Emma, I suppose you would warn people that there could be scammers using this as a hook and they should really only go through that official page to find a a software provider. Rydyn ni'n ymwneud â'r pethau'r pethau'r pethau'r pethau'r pethau'r pethau'r pethau'r pethau'r pethau'r pethau'r pethau'r pethau'r pethau'r pethau'r pethau'r pethau'r pethau'r pethau'r pethau'r pethau'r pethau'r pethau'r pethau'r pethau'r pethau'r pethau'r pethau'r pethau

Also be on the lookout once you've signed up for emails that might look suspicious, might be asking you to click on links to do things. We know that that's something that happens already with people spoofing HMRC addresses. So just be doubly careful when you're getting those and always apply that extra bit of caution.

Especially when you're giving so much information. Okay. Quite a few people got in touch with us to say they're gonna work less to try and stay below the threshold and never have to start doing making tax digital. Here's a message from one of those people. This is Luke. I'm retired with a decent pension, but I work to stay busy. Making tax digital has made me deliberately keep my self employed income under twenty thousand a year.

And that's to avoid the inconvenience of having to follow the rules. This means I only work about eighty percent of the time I have available. If others are doing the same, maybe those are younger and work in a side hustle to try and develop into a business. then this could be something that penalises entrepreneurial spirit rather than encouraging it.

Luke, thanks very much for that. Jonathan, uh perhaps this is more a politics question than an HMRC question, but i is there a concern? Could this actually stop people working as much and limit economic growth? I I've heard stories uh such as the one we've we've just heard, but we're not seeing uh particular you know, we're not seeing evidence of these sort of uh uh eff effects.

Um, what we we we're we're thinking is that as people get more used to making tax digital, actually some of what we've said and certainly seen through the test is that actually once people get up to speed with it and understand what it means for them. uh a lot of the concerns fall away. Uh that we recognise it is a change.

and actually there's going to be some uncertainty around it. But certainly what we saw with making tasks digital for VAT was that once people got up to speed, they were quite confident with the new system and actually, as I said, found advantages with it. But if your income is under twenty thousand pounds a year at the moment as it stands, you will not come under this system.

No, no. If if your combined income from your self-employed uh income sources and all of your property sources added together, if it's below 20,000, you are not currently within scope. Okay, I want to play you a couple of our listeners who are genuinely quite anxious about the technology. Here's Catherine and then Ashley. They've offered these software services, some of them are free and uh then when it comes to it

I can't follow what's going on or they want me to open a bank account or I've actually just written now to see whether I'd be exempt. I thought if I say I've eighty five they'll probably have five more years to live, they'll probably say, Oh well, don't bother because It won't come anything for everybody until that time, so uh that's the only hope I've got. Given my age because I'm almost seventy one, I've never learned Excel or any other more sophisticated software systems.

So that was of course Ashley and then Catherine. Um, but we've had quite a few emails about exactly this as well. Len Lindsay says her husband is a carpenter, he's not d digitally savvy, he gets help from HMRC to complete his annual return. He's perfectly capable of self-assessing, just not online and he can't afford an accountant. And we've had a message from a farmer as well who says that there's been no internet in his neck of the woods for the last four weeks.

Jonathan, you can clearly be any age or in any location and find the technology tricky to use. Who can get an exemption? How do they apply? So uh we we have got an exemptions uh process. So for example, uh some of the uh case studies you mentioned there, if you don't have access to the internet. yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r

Um, so we've got that that channel open. Uh, we can provide you with the the details on how you can contact us. You can either write to us on that one or there is a a phone number as well. um uh which people can contact. Actually writing is easier because we can then take all the evidence uh uh into account.

We've had about three thousand applications uh for exemptions and we've processed about eighteen hundred of them and we've accepted thirteen hundred of those eighteen hundred we've looked at. So There is a route there. We are being responsive. And as a of the ones we processed, 70% have been uh given an exempt. Thank you. Emma, briefly if you can, any advice for people who might be feeling overwhelmed, like Catherine, like Ashley.

I'd absolutely encourage you to have a look at the digital exclusion exemption that Jonathan's talked about there. I would just say for your own peace of mind, get any applications in as soon as you can, because they can take a few weeks for HMRC to turn round, and in the meantime you're obviously going to be left uncertain. If you're not at that end of the spectrum but still unsure, um if you can afford it, try and get some professional advice from a tax agent.

Failing that, contact HMRC. They do have extra support teams who might be able to help in some instances. So there is support out there.

Rydyn ni'n gallu cymdeithasol. Rydyn ni'n gallu cymdeithasol. Rydyn ni'n gallu cymdeithasol. Rydyn ni'n gallu cymdeithasol. Rydyn ni'n gallu cymdeithasol. Rydyn ni'n gallu cymdeithasol. Rydyn ni'n gallu cymdeithasol. We're getting so many questions on this. We're running out of time, but Jonathan Kishan has been in touch with this question.

I just wanted to know that if year one doesn't go as planned for those who are earning over fifty thousand, then is there any contingency plans in place to delay M T D for those earning over thirty thousand, which at the moment is expected to start in April twenty seventh. So Jonathan, will you be slowing down the rollout if this first year doesn't go well? No, w we are go expecting that there will be some bumps in the road in the first year. This is a big change.

Uh so I'm certain there will be some things that that won't quite go as planned. But at the moment we're very confident uh in the rollout. As I said, the numbers are kind of exactly what or broadly where we expected them to be for this uh for this time time of year. So at the moment I've got no concerns about this year. Um, but obviously as I said, we'll monitor as we go through.

I am very grateful you came on the programme to answer all these questions. I I think it's really clear from the emails and the messages that we're getting, from the tone of our listeners, there's a lot of unease. There's actually some anger about the new system. Are you listening to that unease? Can you reassure our listeners? Yes, so certainly. As I said, we've got um we're putting out as much guidance and support as we can.

uh to make so that people understand what's what's required. We're putting out sort of uh videos as well to help people understand what what what what they what they need to do. But I am also recognizing it is a big change. And if you're one of those customers that you you talked about before who's been keeping everything on paper, in you know, uh in a drawer, those sorts of things, that is going to be a big change uh for for you. For other people, less of a change.

But I do recognize we are asking people to work differently. And for some people that might be quite a big uh transitional uh challenge for And so many more questions than we've been able to get to. For those people who we we didn't get to answer their question today, where can they get helpful advice, Jonathan?

So there's lots of really good advice. I would obviously talk start with the gov dot uk uh pages on making tasks digital, but also the representative body, so such uh such as Emma's body uh has been putting out really, really good information, the low income tax reform group.

Uh they they've been putting out information to help and support those on lower lower incomes. So there's lots and lots of advice out there, uh really good advice out there if you need to find out uh more about making tasks digital and what you need to do. Thank you very much. Well, sadly, there's no rollout of making Moneybox longer. So that's it from today's podcast. Huge thanks to everyone who got in touch with their questions.

And thank you to our experts for answering them. We've been hearing from Jonathan Athau from HMRC and Emma Rawson from the Association of Tax Technicians. Paul Lewis is back with Money Box on Saturday afternoon. He will be hopping like an Easter bunny through what changes for your money at the start of the new tax year. If you want to get in touch with a story you think we should cover, here's Jillian from earlier in the programme to tell you how.

If you want Moneybox Live to look at a story or even appear on the programme like I did, then get in touch. You can email moneybox at bc.co.uk or send the team a message or voice note on WhatsApp. The number is O three three O six. seven eight three one eight three. They really do read and listen to every message. Thanks, Gillian. We really do.

In this podcast, the producers were James Graham and Rob Cave, the studio manager Amy Gallagher, our editor is Jess Quayle. I'm Felicity Hannah and this was a BBC News Money and Work Production for BBC Sounds. Group of men ran in with machetes. Субтитры сделал DimaTorzok Bookshop is being flooded with detectives. Welcome. To the world of the triads. If the triad are coming out of you, you're done. Gangster. BBC Sound. Säker på att vi gör rätt.

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