HMRC publish responses to consultations on Making Tax Digital
HMRC has, this week, published more information on how businesses, the self-employed and landlords will benefit from plans to modernise our tax system.
Over the last 8 months, HMRC received more than 3,000 responses to its six consultation documents and has now issued in-depth details of how digitising the tax system through Making Tax Digital (MTD) will help millions of businesses get their tax bills right first time, without the need for an annual tax return.
After listening to the concerns of businesses and agents, HMRC have confirmed that under MTD:
- Businesses will now be able to continue to use spreadsheets to record income and expenditure, which they can then link to software to automatically generate and send their updates to HMRC. This was something that had been a popular request by small businesses and something that the Treasury Select Committee had called for.
- Free software will be available to the majority of the smallest businesses.
- Businesses that are unable to go digital will not have MTD imposed on them.
- All self-employed businesses and landlords with a turnover under £10,000 a year will not have to keep their records digitally or make quarterly updates, but can do so if they wish. This is quite meaningless, as these people will not be liable to tax anyway as their personal allowance will extinguish their income.
- The option to account for income and expenditure on a simple ‘cash in, cash out basis’ will be extended, helping an extra 2.5 million self-employed businesses and unincorporated landlords.
- Taxpayers will have at least 12 months to become familiar with the changes before any late submission penalties will be applied. HMRC will consult again in the spring on a new penalty model.
- HMRC will pilot the digital systems with hundreds of thousands of businesses before rolling them out to ensure the software is user friendly, and to give businesses and landlords time to prepare and adapt.
The government will need to consider further issues, such as the initial exemption threshold and deferring the changes for some small businesses alongside their cost, with final decisions to be made before legislation is introduced later this year.
Under HMRC’s plans to move recording and paying tax online, most businesses, the self-employed and landlords will be able to keep track of their tax affairs digitally and update HMRC quarterly by 2020, making the tax return obsolete. HMRC also believe this will eradicate errors, help businesses get their tax right first time and give them a clearer view of their tax position throughout the year. Reducing the amount of avoidable errors will not only reduce the cost but also uncertainty and worry that businesses face when HMRC investigate them. Are we therefore to expect less Revenue enquiries in the future??
Stupidest idea in a while, to roll this out so fast… hopefully a higher threshold will come in.
Completely daft. My wife is self employed – she is excellent at her job but not an accountant or administrator. To expect quarterly updates with a tight time limit will change the whole emphasis from customer service to paper shuffling. Yes, I will get the returns in on time but I expect her earlier retirement as a consequence. I predict many self employed will fail at the admin or incur higher costs. This rewards bureaucrats not those actually doing a job.
I agree 100% with Andrew. HMRC are trying to compel people to do something that not all are capable of. In 16 years in practice as an accountant I very rarely, if ever, came across a set of accurate accounting records presented by clients. Unless the client operated control procedures such as reconciling the cash book to the bank statement balance it was inevitable that errors would be undetected. Yet HMRC are assuming in their business case that MTD will reduce errors. They live in La La Land.