The moment that we have been waiting for, HMRC have published their responses to its six Making Tax Digital (MTD) consultations.
1. Bringing business tax into the digital age
- Businesses will continue to be allowed to use spreadsheets for record-keeping: provided that their spreadsheet meets the necessary requirements of Making Tax Digital for Business.
- Businesses eligible for three-line accounts will now 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 businesses have to make and store invoices and receipts digitally.
- Activity at the end of the year must now be concluded and sent either by ten months after the last day of the period of accounts or 31 January, whichever is sooner.
- Charities (but not their trading subsidiaries) will not need to keep digital records
- For partnerships with a turnover above £10 million, Making Tax Digital for Business is deferred until 2020.
The government will need to consider further issues such as the initial exemption threshold and deferring the changes for some small businesses.
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.
HMRC's own impact assessment (it downplays the cost): it estimates a one-off transitional cost of £280 per business, followed by small ongoing annual savings.
2. Penalties
- Late filing: more work needs to be done, and will allow a 12 month period of grace.
- Late payment: subject to further consultation.
3. Simplifying tax for small business
HMRC appreciate that small businesses cannot cope with too many changes at once. Measures being taken forward include:
- Increasing the entry threshold for the cash basis to £150,000.
- Simplifying the rules on capital and revenue expenditure within the cash basis to make it easier for businesses to work out whether their expenditure is deductible for tax.
4. Simplified cash basis for landlords
- Cash accounting to be allowed for businesses with a turnover up to £150,000.
5. Voluntary pay as you go
Allowing the opportunity to make extra payments on account. There are concerns about the processing of overpayments.
- Repayment will not be repayable shortly before a liability becomes due only if the customer failed to pay on time in the previous 12 months.
- Early repayments are better left until Making Tax Digital for Business is fully embedded.
6. Transforming the tax system through better use of information
This is how will make better use of the information received from third parties.
- In 2017 HMRC will start to use PAYE information during the tax year to calculate whether the right tax is being paid.
- HMRC have been working with third-party information providers and individual customers on co-designing a process for resolving queries when a customer believes the information provided by a third party is incorrect. HMRC will continue to use customer feedback and engage with stakeholders to ensure that this process is clear and easy to use.
- HMRC will adopt a gradual phased approach to using further sources of third party information and will seek to make better use of information we already hold.
Links
Making Tax Digital: The Grand Design
Links to news, consultations and responses on MTD including the House of Lord's NEW call for evidence.
MTD: Let's Simplify
Comment piece: let's make it even easier.
External link
HMRC consultation response: Bringing Business into the Digital Age