UK and International Tax news

Making Tax Digital Update

Monday 6th February 2017

HMRC has recently published its responses to the six consultation documents issued in August 2016 on Making Tax Digital [MTD] for businesses.

Under HMRC’s plans to build a more accessible and transparent tax system, most unincorporated businesses, self-employed people and landlords will start to keep track of their tax affairs digitally and update HMRC quarterly from 2018. According to HMRC, this will make the annual tax return a thing of the past for millions of people and businesses.

HMRC has stated that respondents to the consultation process overwhelmingly supported the move to a digital tax system although they raised concerns over:

  • the pace of change
  • the capability of the smallest businesses and those who struggle with digital technology to adapt
  • burdens on businesses
  • agents’ ability to access digital services to support their clients
  • data security when using third party software

HMRC has now confirmed the following relaxations:

  • businesses will be able to continue to use spreadsheets for record keeping, but they must ensure that their spreadsheet meets the necessary requirements of MTD which is likely to involve combining the spreadsheet with software;
  • businesses eligible for three line accounts will now be able to submit a quarterly update with only three lines of data (income, expenses and profit);
  • free software will be available to businesses with the most straightforward affairs;
  • the requirement to keep digital records will not mean that businesses have to make and store invoices and receipts digitally;
  • activity at the end of the year must now be concluded and sent either by ten months after the last day of the period of account or 31 January, whichever is sooner;
  • charities, but not their trading subsidiaries, will not need to keep digital records;
  • for partnerships with a turnover above £10 million, MTD is deferred until 2020.

The government will need to consider further issues such as the initial exemption threshold and deferring the changes for some small businesses. Given the range of views expressed on this matter from respondents to the consultation, the government will take more time to consider these issues alongside the fiscal impacts. Final decisions will be made before legislation is laid later this year.

In addition to the written responses, the Treasury Select Committee published a report into MTD for Business which addressed many of the Committee’s recommendations, including recognising the importance of thoroughly piloting the changes before implementation. HMRC will begin piloting digital record keeping and quarterly updates for a full year from April 2017, building up to working with hundreds of thousands of businesses and landlords before rolling the services out more widely with the objectives of ensuring the software is user friendly and giving individuals and businesses time to prepare and adapt.

If you would like further information on the proposed implementation of MTD for Business, please contact Keith Rushen on 0207 486 2378.

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