Making Tax Digital (MTD)

The former Chancellor, George Osborne, in his 2015 Budget, announced his plans for a “brave new world” of transparency and accessibility in the UK tax system which would be the envy of the world! His vision of Making Tax Digital would be fully implemented by HMRC by 2020 giving us all, including HMRC, a very challenging target!

In August, HMRC released not one but six Consultation Documents on the subject and all of us in the accountancy profession have been busy picking over the bones of the proposals and formulating our responses and feeding in comments to our various professional bodies who will respond to HMRC on the content of the ConDocs on behalf of millions of members. The deadline for responses is 7 November 2016.

So, on the eve of the deadline, just what do we know? Firstly, the Government started by rolling out Digital Tax Accounts for individuals and similar accounts for businesses. This should eventually ensure that taxpayers no longer have to report income that HMRC has already been told about by, for example, banks, employers, stock brokers etc. Taxpayers should have the complete picture of their tax situation in one place. So far, so good.

HMRC then announced Quarterly Reporting would be introduced, effectively making self-employed individuals, businesses and landlords report and update their tax affairs every three months. MTD will start with the smallest businesses first but there is an exemption for those small businesses and landlords where the gross income from their activities is under £10,000 p.a. This is not a particularly generous move by HMRC, considering income of this level would be covered by the annual personal allowance and so unlikely to be subject to tax!

These quarterly updates would not be necessary for employed individuals and pensioners with secondary sources of income below the £10,000 limit.

So, whilst George Osborne trumpeted the end of the annual tax return, this will effectively be replaced by “Reports” uploaded every quarter with a year-end summary to reconcile the Quarterly Reports and to make any necessary adjustments. So, for millions of taxpayers, the annual tax return will be replaced by five digital inter-actions with HMRC every year!

HMRC envisage this digital revolution is just a tap of an app away! It is intended that the Quarterly Reporting can be done from a smart phone or through HMRC’s (own) provided software or third party software. HMRC say there will be help and even some limited financial support to assist individuals and businesses cope but this unlikely to stretch to enough money to buy a smart phone if you do not already have one!

The proposed time line is very challenging in every respect with small businesses and landlords starting reporting under MTD from April 2018, VAT registered businesses from April 2019 and companies from April 2020. There is much debate around potential delays for the implementation of MTD. The consultation timetable suffered when the original ConDocs were not ready for the scheduled release in March 2016 and then there were further delays due to the EU Referendum. So HMRC are slipping from their original objectives; questions are being asked whether software houses can produce, test and offer to the market the necessary software, and add to the mix the fact that HMRC are in the midst of major IT transitions of their existing systems and it is no wonder the original timetable is looking shaky.

Of course, the responses to HMRC’s ConDocs by the ICAEW, the ATT and AIETP, of which we are members, will be focusing on many of the practical issues associated with MTD – a generation who are not comfortable with smartphone technology, intermittent internet coverage, untried and unproven HMRC software, the unseemly haste of implementation, the low exemption level etc.

We will be updating you on developments for MTD on our blog, so watch this space. If you have any questions, then please contact either Gerry or Paulette or email: [email protected]