HMRC finally provides more clarity for Making Tax Digital

After months of delays and speculation, the Government’s long-awaited responses to six consultations about Making Tax Digital (MTD) were published at the end of January.

Despite ongoing criticisms regarding the short timescale for the proposed MTD roll out, HM Revenue & Customs (HMRC) confirmed that the project will not be delayed.

This means that mandatory quarterly digital reporting will be phased in for self-employed individuals and landlords in April 2018, with small and medium-sized enterprises (SMEs) soon to follow.

By 2020, “most businesses, self-employed people and landlords will be able to keep track of their tax affairs digitally and update HMRC quarterly,” according to the Revenue.

Key highlights and/or changes outlined in the Government’s responses include:

  • Businesses that ‘cannot’ go digital will not be required to do so
  • Self-employed businesses and landlords with a turnover under £10,000 a year are not obliged to keep digital records or send quarterly updates to HMRC but can opt into MTD if they wish
  • Partnerships with a turnover of £10m or more will not ‘go digital’ until 2020
  • Customers will have 12 months or more to become familiar with MTD changes before late submission penalties are applied
  • HMRC will consult in the spring on a new penalty model
  • Charities will not be expected to keep digital records or make quarterly updates
  • Free software will be available for a number of small businesses
  • Businesses can continue to use spreadsheets to record receipts and expenditure, but will need to be link this to software which will automatically generate and send updates to HMRC
  • The option to account for income and expenditure on a simplified ‘cash in, cash out’ basis will be extended
  • Within the Spring Budget it was also confirmed that unincorporated businesses with turnover below the VAT threshold (£85,000 from April 2017) would have their deadline for quarterly reporting deferred for a year until April 2019.

HMRC will pilot MTD with ‘hundreds of thousands of businesses’ before officially rolling out the project. However, the Government has said that some of the above proposals could be subject to further changes.

HMRC’s Director General, Jim Harra, said: “There were more than 3,000 responses to the consultations and I’d like to thank everyone for their time and effort.

“Making Tax Digital will help businesses to get their tax right first time; it will help reduce the likelihood of errors, lower the chance of unwelcome compliance checks and give them greater certainty that they are getting things right.”

Financial Secretary to the Treasury, Jane Ellison MP, added: “As most consultation responses acknowledged, a digital tax system is a logical step in an increasingly digital world.

“For the majority I believe that Making Tax Digital will transform the way businesses, landlords and the self-employed interact with the tax system for the better, by providing clarity and certainty over their tax affairs throughout the year and making it easier for them to get their tax right first time.”

For further information on how to ensure both your firm and you clients’ businesses are ready for MTD, please contact us.