Making tax digital; HMRC's consultative document.

Making tax digital: After being delayed first for the referendum and then for a change of Prime Minister and Cabinet, HMRC finally published in the summer not just one consultation document on this subject but six! They outline the details of its digital tax strategy and seek the views of taxpayers and their advisers. The deadline for any responses is 7th November 2016; that’s now just a few weeks away.

The consultation documents detail what will be a major change in how we all interact with HMRC. They are written to emphasise the advantage to taxpayers of having certainty over their tax obligations part way through the tax year, rather than at the end.  The degree of certainty provided is open to debate, and the principle that the accuracy of output from a system is only as good as the accuracy of the data input will certainly apply here.

Going digital will abolish the annual tax return as we know it by 2020, replacing it with a personalised digital service through which taxpayers will be able to send and receive information to HMRC at the click of a button.  Traders will be required to submit accounting data direct from suitable accounting software on a quarterly basis.  Data relating to some sources of income, such as bank interest and employment, will be captured from the relevant third party and automatically populate the taxpayer’s digital account.  Whilst this sounds like a smoother process in theory, taxpayers must still check the accuracy of data supplied by third parties.

It has been suggested that this new digital tax regime is another shift of the administrative burden of our tax system still further away from HMRC and placing increased obligations on the taxpayer and their advisers. This will enable tax to be collected more cheaply and with fewer staff.

Timetable for Making tax digital.

The current timetable for implementation will see:

• unincorporated businesses first off the starting line in April 2018;
• by concession businesses and landlords with income of less than £10,000 per annum are expected be exempt; and
• those in the next band up from £10,001 to an ‘upper threshold’ (yet to be confirmed) will be delayed until April 2019;
• and then Corporation Tax (incorporated businesses) from April 2020.

Many tax and accounting professionals believe that this timetable for implementing MTD is “worryingly short” and should be delayed by at least a year.

For partnerships and Limited Liability Partnerships (LLP’s) the ‘nominated partner’ will be responsible for fulfilling the obligations under MTD on behalf of all the partners (or members, if an LLP).  In the same way those who jointly let property will have to nominate an individual to be the ‘nominated individual’ with all the reporting responsibilities.

Frank Haskew, head of the ICAEW tax faculty, said “We want to work with HMRC to build a digital tax system that small businesses will want to use and see value in, rather than being a system they are forced to use and which adds to their costs”.

Chas Roy-Chowdhury, Head of Taxation at ACCA, said “The penalty regime for tax has always been driven by return deadlines, with fixed ‘drop dead’ trigger points built into the timetable. But under MTD that anchor point for the process disappears.” He adds that “the whole basis of compliance promotion will have to be revisited.”

We are watching closely and will report again on any future developments. Meanwhile you should be starting to think about whether your business’ records would currently be adequate to meet its obligations for quarterly updates in addition to the normal year-end adjustments.  Please do not hesitate to contact us, should you wish to discuss any aspect of the current plans for making tax digital.