The Finance Bill 2017-19 is on its way through parliament, breathing new life into Making Tax Digital (MTD) and bringing a controversial cut to the dividend tax-free allowance a step closer to reality.
Making way for Making Tax Digital
MTD was one of the tax measures dropped in the pre-election Finance Bill, due to the lack of time for scrutiny in parliament before the snap general election took place in June. While the timeline for implementing MTD was subsequently scaled back, the government said that it remained “committed to the digital future of the tax system” and that it would pursue measures to legislate for MTD in the next parliament.
Now that the post-election dust has settled, the new Finance Bill puts MTD back on track with proposals to legislate for MTD for VAT as well as for Income Tax. In the revised timescale for MTD, which was announced in July this year, deadlines for keeping digital tax records were only confirmed for VAT figures, with similar requirements for “other taxes” only coming into effect in 2020 at the earliest. The inclusion of MTD for Income Tax in this Finance Bill is a strong signal that the government is still committed to rolling out MTD beyond the boundaries of VAT reporting.
The Finance Bill 2017-19 also seeks to introduce a minimum threshold for businesses to be mandated to participate in MTD. The government has previously said that this will be £10,000 annual turnover.
Dividend tax-free allowance to be cut in April
As proposed in the Budget in March, the Finance Bill confirms that the government still plans to drop the dividend tax-free allowance from £5,000 to £2,000 from the 6th of April 2018. The government says that this move is to make the total amount of income investors can receive “fairer and more affordable”. As we reported in March, however, company directors/shareholders who take a low salary from their company and make up the rest of their income with dividends will have to pay more tax on that income as a result of this measure.
The Finance Bill 2017-19 is currently being considered in parliament, and will not be fully introduced until after the Autumn Budget has been announced on the 22nd of November.