Making Tax Digital (MTD) – Where are we now?
Making Tax Digital (MTD) was announced in the Autumn Statement 2015 with two main thrusts; Business MTD and Personal MTD.
The idea has been generally well received and, if implementation goes according to plan, will be a step towards transparency in the tax affairs of both individuals and businesses, but commentators have also noted MTD is clearly leading to an advance in the payment of tax which hitherto, in some cases, has been made well after the end of the relevant tax year.
Despite the relatively short lead time to first implementation in 2018/19, HMRC has been rather shy of sharing detailed information on this initiative with the professional bodies and the general public.
So far, there has been some generalisations about the aims for Personal MTD and only limited information on the Business MTD. HMRC have indicated that the initiative will start with the quarterly digital reporting of income/expenditure by the smallest businesses (including landlords) first, until eventually the largest businesses in the land will be brought within the Business MTD by 2020. This seems a somewhat inverted approach since it is likely that smaller business owners will require much more education (or even the purchase of a computer!) in order to be “up to speed” by 2018/19, whereas larger businesses are much more likely to be capable, already, of the quarterly digital reporting because of more sophisticated internal accounting systems and staff expertise.
HMRC’s perception is that poor record keeping by smaller businesses has led to a loss of tax to the Exchequer but no evidence has been presented by HMRC in support of this. In fact, in most accountants’ experience, poor record keeping is more likely to lead to understated expenditure, which leads to more, rather than less, of the income being taxed! Small businesses will, undoubtedly, need more professional help and one of the main concerns of MTD centres around the additional reporting burden this quarterly digital account will bring for small businesses and landlords. The ubiquitous “cash” book and annual accounting will be a thing of the past!
Of course, no new HMRC initiative requiring “participation” by the taxpayer, arrives without sanctions and penalties for failure to comply! The formal consultation on these will be later this year.
For those interested, the Government’s MTD document, including the timeline for implementation, can be found at: