Update on Making Tax Digital
HMRC have issued their response to the consultations on MTD. The more cynical among us might take the view that HMRC have decided what they are going to do and any “consultations” are purely for cosmetic purposes!
Their response focuses on concerns about the pace of change; very small businesses; those who struggle with digital technology; burdens on business; data security; and the ability for agents to access clients’ records.
On the important questions of the turnover level at which MTD becomes compulsory and when MTD will be introduced, we are only told “the government will need to consider further issues such as the initial exemption threshold and deferring the changes for some small businesses”. HMRC suggest that final decisions will be made before legislation is laid “later this year”. HMRC proposed an exemption from MTD where turnover is less than £10,000 per annum.
A couple of things have been listened to. Firstly, the proposed implementation in April 2018 has been deferred until April 2019 for businesses with turnover below the VAT threshold. Secondly, HMRC have agreed to run a series of “pilots” for a full year starting in April 2017.
So, what has changed as a result of the “consultation”?
You can continue to use spreadsheets for record keeping but you must be able to combine these with software for MTD.
Businesses will still be required to submit quarterly updates but those below the VAT threshold will just be able to report turnover, total expenses and profit.
Free software will be available for very straightforward businesses (no details provided!).
Businesses don’t need to prepare and store invoices and receipts digitally.
The year-end reconciliation will need to be submitted by 10 months after the period of account ends or 31 January, whichever is sooner. If you choose to prepare your accounts to 30 January, this would seem to require you to submit your accounts the next day! Surely that can’t be right! The wording about this is not very well presented but the intention actually seems to be that businesses with a 31 March accounting date will be the only ones to retain a submission deadline of 31 January. If, for instance you prepare accounts for the year ended 30 June 2019, the new deadline will be 30 April 2020 rather than 31 January 2021 (under the current legislation).
Charities will not need to keep digital records.
There is very little information on agent access to client records. HMRC merely say that the client will be able to choose how much access to grant but there is no practical guidance on how this is expected to happen.
HMRC believe that there will be a one-off cost of £280 per business followed by small ongoing annual savings. This was in response to a suggestion that MTD could cost businesses over £1,000.
The revised proposed timetable for implementation of MTD is now:
April 2018 for businesses with turnover above the VAT threshold
April 2019 for businesses with turnover below the VAT threshold, and for VAT purposes for all VAT-registered businesses
April 2020 for corporation tax purposes.