Making Tax Digital: separating the alternative truths from the myths. 

Spreading your word through an inventive use of propoganda is not new. We may be in the first or second phase of 'the Information Age' and the current trend is the spread of fake news full of alternative truths.

 HMRC's Making Tax Digital team produced something called a Myth Buster back in 2016. This was in response to a parliamentary debate about quarterly reporting. If the Myth Buster was the truth, then why does HMRC say different elsewhere. The truth is out there (somewhere)...Can you spot the myth from the alternative truths and the facts? 

HMRC set out five items which it referred to as 'Myths' and then made its comments.

 'Myth'  HMRC's myth buster said:  HMRC's 'alternative truths' are: The actual facts 
Businesses will need to do four tax returns a year  
  • No. Businesses will not need to file four tax returns a year.
  • The new digital accounts will integrate all the different information businesses already provide to HMRC into a simple, streamlined system.
  • Instead of one big, onerous tax return each year once a quarter businesses can check that the information they are collecting digitally is correct, and simply click "send" to update HMRC.

HMRC says elsewhere:

"All businesses, with income tax, National Insurance contributions, VAT or Corporation Tax obligations will be impacted by MTD as they will need to keep track of their tax affairs digitally and update HMRC more regularly using digital tools..." They have to report to HMRC both quarterly and annually using software to file returns for them.

Yes, it is FIVE tax returns per year.

HMRC will also be risk testing your data.

It will be pretty risky to press 'send' without reviewing your analytics. 

 

 'Myth'  HMRC's myth buster said:  HMRC's 'alternative truths' are: The actual facts 

This does not consider those who are digitally excluded

  • There is no question of forcing those who cannot go digital to do so. Help will be available for businesses who struggle to use digital tools.
  • People who genuinely can't use digital tools will be offered alternatives, like nominating someone else to update their information for them, or giving information by phone.
 
 Help is by default available online

.

 

 HMRC has not published details as to how it will deal with those who struggle with IT or do not have access to reliable internet or phone signals.

 'Myth'  HMRC's myth buster said:  HMRC's 'alternative truths' are: The actual facts 
  Businesses don’t want to do tax digitally  
  • Millions of firms already manage their tax online. 99% of VAT returns are done online, 98% of Corporation Tax and 86% of Self-Assessment returns are done online.
  • Many taxpayers want more certainty over their tax bill and access to an in-year picture of their tax position, which their new digital accounts will provide.
 HMRC admits that: less than 8% of VAT returns are filed using third party software.

 

Online filing of VAT is already mandatory.

Most people use HMRC's software because third party software does not make the adjustments required for VAT

98% of corporation tax returns are filed online because it is mandatory to do so.

86% of self assessment returns are dong online because the deadline is later than the paper filing deadline.

 

 

 'Myth'  HMRC's myth buster said:  HMRC's 'alternative truths' are: The actual facts 
 

Businesses will need to keep extra records and the digitisation will cost a fortune

 
  • No additional records are needed for increased digitisation. These changes will contribute to our target to reduce business burdens by £400m.
  • For those who aren't already keeping records digitally, there will be free software and clear, simple advice on how it can be used.

 HMRC says that:

By 2020, most businesses will be required to use software or apps to keep their business records and to provide regular updates of information."

In short, businesses who currently do not use software or computers will be required to do so, or engage an agent to act for them. HMRC is not providing free software.

 Anyone who is mandated to file under Making Tax Digital will have to equip themselves with the necessary hardware and software.

An internet connection is required.

HMRC is providing APIs so that software can 'talk' to it.

You will in time be fined if you make errors in recording or sending your data.

You will have to pay your accountants more if you wish them to check your data. They will have FOUR extra submissions to check.

 'Myth'  HMRC's myth buster said:  HMRC's 'alternative truths' are: The actual facts 
 The new plans will increase errors and hinder compliance  
  • Not true. The scope for error will be greatly reduced - meaning fewer businesses face the shock of a bigger tax bill than they expected at the end of the year.
  • Annually £6.5bn is lost through error. These reforms will improve the quality of record keeping and reduce mistakes.
  • HMRC have also published four case studies setting out how the digital tax system will help individuals and companies:

  • Record keeping software and apps will automatically link financial records with digital tax accounts
  • Bank accounts can be directly linked to apps to automatically populate income and expenditure
  • Apps will signpost to relevant HMRC guidance
  • Tax liabilities can be estimated and regular payments made to cover income tax and VAT liabilities.
 

In 2014 HMRC re-launched its Business Record Checks pilot. Amidst allegations that small business was poor at record keeping, it was discovered that the situation was not as bad as feared. HMRC have never published the result of this pilot.

Many taxpayers will have to start using new software and learn bookkeeping whilst running their business.

People will need to set up software to link to their bank accounts etc.

Apps do not automatically sort out bank feed: the customer still has to instruct what expenses are business or not.

HMRC's guidance is not the tax law. There is a limit how much guidance you can fit on a small screen.

Tax liabilities can be estimated - this is a joke right? Surely if MTD works tax liabilities will be correct.

Taxpayers will be required to make payments on account quarterly.

Late payment penalties will apply.

MPs are exempt from MTD because of 'security'.



Comment

Despite HMRC assurances, concerns remain about the costs involved in complying with digital filing requirements which are likely to have the greatest impact smaller businesses, many of whom are already struggling to keep up with the PAYE Real Time Information requirements. 

Some will not have up-to-date computer systems and despite promises about “free software and apps” may still have to buy additional hardware, software and assistance packages or even employ additional staff to deal with this extra level of compliance.

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