The Government’s long-awaited responses to six consultations about Making Tax Digital (MTD) which were originally opened in August 2016 were published at the end of January.
Despite ongoing criticisms regarding the proposed short MTD timescale, 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 do not have to keep digital records or send quarterly updates to HMRC if they do not wish to do so; 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; and 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 will be able to continue to use spreadsheets to record receipts and expenditure, but this will then need to be linked to some form of 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.
- 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”.
“HMRC are determined to push ahead with Making Tax Digital in what is a rather short time scale. Anyone not currently using a computerised bookkeeping system like Xero will need to look into taking this on board and possibly discussing this with us. Unfortunately there seems to be no way to stop this ‘HMRC bulldozer’ – times are going to be very uncertain and interesting.”