The government published their responses to the six consultations on making tax digital (MTD).
In response to the consultations the government have decided the following:
- Businesses will be able to continue to use spreadsheets for record keeping, but they must ensure that their spreadsheet meets the necessary requirements of Making Tax Digital for Business (MTDfB). This is likely to involve combining the spreadsheet with software.
- Businesses eligible for three line accounts will 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 does not mean that you have to make and store invoices and receipts digitally.
- Activity at the end of the year must be concluded and sent either by ten months after the last day of the period of account or 31 January, whichever of these is soonest.
- Charities (but not their trading subsidiaries) will not need to keep digital records.
- For partnerships with a turnover above £10 million, MTDfB is deferred until 2020 due to the complexity of their tax affairs.
The MTD consultations also specifically explored the appropriate level of the initial exemption and deferral for the self-employed, landlords and businesses. Given the range of views expressed on this matter from respondents to the consultation, the government has decided to take more time to consider these issues alongside the fiscal impacts. Final decisions will be made before the law is finalised later this year.
In addition, 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. The stated aim of this pilot is to ensure the software is user-friendly and give individuals and businesses time to prepare and adapt. Piloting of the system had been recommended by the Treasury Select Committee.
Select Committee’s findings
The Treasury Select Committee has urged HMRC to implement a series of wide-ranging pilots in order to better test the government’s plans for the new digital tax initiative, Making Tax Digital (MTD), before it becomes compulsory for the majority of taxpayers.
The report found that, while the government had already carried out trials of the new initiative, those businesses which took part had done so at HMRC’s invitation.
The Committee stated that comprehensive pilots of MTD are ‘essential’, and that these need to be designed to collect information over the entire reporting cycle.
It also suggested that an evaluation of these pilots should be carried out before the full implementation of the scheme which is expected, for all but the smallest businesses to be implemented from April 2018 onwards.
Andrew Tyrie MP, Chairman of the Committee, said:
‘Without sufficient care, MTD could be a disaster. Implemented carefully, with long transitional arrangements where necessary, and, having drawn on information from fully inclusive pilots, MTD could be designed for the benefit both of the economy and of the tax yield. But with a rushed introduction, it will benefit neither.’
MTDfB will still be phased in from April 2018. We will keep you informed of developments.