What is the government proposing, exactly, for Making Tax Digital (MTD)? We’ve known for a while that it’s coming, and that it will affect how we declare tax over the coming years. April 2019 is still the start date for anyone beyond the VAT threshold. And finally, we have a Draft Finance Bill: 226 pages of tax law that reveal the nuts and bolts of the scheme.
To find some answers, GoSimpleTax have looked long and hard at this legislation. Two things in particular stand out: the penalty system and rent-a-room relief…
How MTD penalties will work
A digital tax portal will make it easier for HMRC to process and store your data, but it also asks us to meet a quarterly submission cycle, starting in April 2019 with VAT-registered businesses with a turnover of more than £85,000. Those who miss it are in line for a penalty. According to the Draft Bill, this will be measured using a point system. When you gain too many, a fine and/or investigation will be issued. The exact amount, for now, is unclear. It may change with successive governments as time goes by.
There are, however, exceptions to the rule. Points won’t be given if HMRC’s software crashes minutes before a deadline, for instance, or if the same happens to the taxpayer’s phone, tablet or computer. It’s at HMRC’s discretion, and appeals can also be submitted for consideration. What we don’t know quite yet is whether tax professionals acting on behalf of their clients can make an appeal.
Points won’t last forever either. Users who remedy their activity and fulfil their obligations when they’re due will have them wiped from their online tax profile.
Tax relief for spare room rental will be harder to get
At present, rent-a-room allowance works out like this:
- You can let out a single space in your home to a tenant, gaining a tax-free income up to the value of £7,500 for single ownership, or £3,750 if you’re a joint owner.
- Anyone who earns more than the threshold has to complete a tax return for the remaining portion. Being under the £7,500/£3,750 limit puts you into the scheme automatically.
- There are varying rules for ‘boarders’ and ‘sub-tenants’ – each of which you can find here. Expenses, as a whole, are exempt if you claim rent-a-room relief.
Upon reading the 2019 Draft Finance Bill, it seems that the government are going to crack down on who can benefit, since current definitions are too lax. There’s a misassumption that a property owner can be absent for months at a time (as in, for example, a holiday home) whilst letting out a room and acquiring the tax break.
This isn’t so. Next April will see taxpayers forced to prove they live in the domicile for most or the whole of the year. Thousands of renters will miss out unless they can do this.
Remember that the Bill is still in its infancy. Consultations are taking place until the 31st August. Whatever the outcome – both in April 2019 and the decade to follow – it’s worth getting a handle on your MTD affairs. That’s achievable with GoSimpleTax, the mobile software that monitors what you owe and where the evidence lines up. HMRC has granted its approval. Try GoSimpleTax for 14 days, free of charge, and prepare for the incoming transformation.