Making Tax Digital

HMRC has a complete change of tune on MTD

and it is music to the ears of Small businesses and their Accountants.

HMRC says it wants feedback from tax agents and software developers following the announcement that the MTD implementation timetable has altered significantly.

Voluntary MTD

The announcement on 13 July 2017 that the rollout of MTD for business was to be pushed back to 2020 came as a big surprise to everyone, including the software development support team at HMRC.

The latest timetable (see below) is still quite vague, but the written statement made by Mel Stride, Financial Secretary to the Treasury, makes it clear that compliance with MTD reporting will be voluntary for taxes other than VAT until at least April 2020.

That statement says: “The Government will not widen the scope of MTD beyond VAT before the system has been shown to work well, and not before April 2020 at the earliest. This will ensure that there is time to test the system fully and for digital record keeping to become more widespread.”

Time for redesign

HMRC has acknowledged in calls to software developers that the MTD project needs to be reconfigured into something that businesses want to use, as the emphasis will now be on encouraging people to opt into MTD, rather than compelling people to use the system with the threat of penalties. This indicates that a redesign of the whole structure of MTD will be required.

The difficulty accountants will face is persuading clients that the costs of using MTD-compliant software will be outweighed by the convenience of digital record keeping, better accounting information, and potentially lower accountancy fees.

Some accountants won’t push their clients towards using MTD software until it becomes compulsory, others will continue along the road towards cloud accounting for all clients.

The law

It is clear that voluntary MTD reporting will mean the current online and paper methods of filing tax returns will have to run in parallel to MTD reporting for some years. It follows that the law which underpins MTD, (dropped from FA 2017 before it was rushed through Parliament in late May) will have to be redrafted yet again. We are not likely to see a new version of the draft MTD law and regulations before September 2017.

Software implications

A key plank of the original MTD plan was that free software would be available to allow the smallest businesses to comply with their MTD reporting obligations. As MTD reporting will be voluntary for businesses which are not VAT registered, the need for this free software disappears. This could punch a hole in the bottom of the business plans for start-up companies planning to develop MTD software for sole-trader businesses.

The absence of free software should not greatly impact well-established software developers. Rob Ellis, CEO of BTCSoftware, said the company has been closely working with HMRC's Digital Team for the past 18 months on MTD and would continue to do so. It would, however, take this opportunity to canvas opinion from its customer base as to what they will need from tax and accounting software over the next few years.

More consultations?

If HMRC wants to hear the tax community’s ideas about the direction and development of MTD, they need to issue some new consultation documents. We have been promised a consultation paper on complex businesses and MTD since December 2016, which has still not materialised. This document was supposed to cover how MTD would apply to companies and larger partnerships.

The current plan for MTD is based on HMRC releasing APIs to handle the transfer of data to and from accounting software. However, to date there have been no APIs released to deal with accounting data from any size of partnership, and similarly, no APIs exist for trusts which carry on a trade.

The issue of VAT reporting under MTD was not covered in great detail in the MTD consultations last summer, as the consultation papers only addressed unincorporated businesses. Now that the emphasis is on requiring all VAT reporting to be done using accounting software, the sensible way forward would be to have a full consultation on the VAT related issues, including draft legislation, before the necessary software is designed.

About the author

Rebecca Cave

Consulting tax editor for Is also co-author several annual tax books for Bloomsbury Professional and write newsletters for other publishers.

Massive climb down forced on HMRC regarding it's disastrous Making Tax Digital plans.

13th July 2017

We are delighted at Gilchrist & Co Accountants to be able to inform you that HMRC has announced significant changes to the roll-out of its Making Tax Digital scheme, which was due to go live from April 2018.

Following feedback and concerns about the broad scope and short timescales from parliamentary bodies, businesses, the accounting profession 'including Gilchrist & Co' and software companies such as Xero, Sage and Freeagent the scope and timetable have now been pared back as follows:

  • Only businesses with a turnover above the VAT threshold will have to keep digital records and only for VAT purposes. They will only need to do so from 2019.
  • Businesses will not be asked to keep digital records or update HMRC quarterly for other taxes until at least 2020, instead of 2018 as originally proposed.
  • Small businesses will be able to file digitally on a voluntary basis for other taxes.

As as a small business advocate, we where deeply concerned about HMRC’s vision for a digital tax system, and not least because of the £8Bn tax gap HMRC was planning to balance on the back of small business and the way they were excusing their own failings by blaming poor record-keeping practices by SMBs.

It’s crucial that businesses and the accounting industry are given adequate time to adapt to new methods of compliance record-keeping. And where possible, any new rules should also improve SMB and accountant productivity and not just satisfy HMRC’s own agenda.

The UK still languishes at the bottom of the table of G8 nations for productivity; Blame for our falling productivity is the increasing red tape and the massive administrative, tax, pension and payroll burden that small business is being forced to carry. It follows that smarter and more productive UK SMBs will play an important role in securing our economic future at the same time as creating vital new jobs in the next decade. So this extra time to build and bed down new digital processes for SMBs and accountants is welcomed, and I’m glad that HMRC has responded to the many concerns raised. However the problem and the threat of Making Tax Digital and the mismanagement of business taxation and regulation by HMRC and Government has not gone away!

Monitoring and preparing for Making Tax Digital will be a key part of our planning and strategy at Gilchrist & Co Chartered Accountants , and we’re looking forward to working with our clients and partners to develop strategies to deal with Making Tax Digital, Auto Enrollment and PAYE Real Time Reporting.

See HMRC's Official release on the matter here:

Contact us NOW to see how we can assist your business.

The end of the cashbook is nigh, so start planning now for 2018

For those who like to be super organised, now is the time to think about Making Tax Digital (MTD) and how exactly you will file not only quarterly accounts figures, but also those for your VAT Return. MTD should be fairly straight forward for those already using the cloud for their accounting records. The big software companies will need to have the necessary updates in place to make the filing possible, and presumably straight forward.

What should you do if you are not using the cloud at present? Will this not only be the end of the cashbook but also desktop accounting software? Software companies are encouraging everyone to use the cloud by making desktop software increasingly expensive and running ‘special offers’ for cloud versions.

Switching how you maintain your accounting records should be carefully considered. The best time will usually be to coincide with a year end, this will however necessitate planning prior to then. If switching from desktop to cloud then the process is relatively easy; either by using the reporting template issued by the software companies, or by using external software to do it for you.

For those who have steadfastly clung to their cashbooks and repelled all suggestions of computerising their records there will be the biggest shock. At present HMRC say that it will be possible to use Excel spreadsheets, this will involve some type of link with HMRC and therefore increase the scope for errors. There are basic entry level versions available from the main software suppliers and, as these will be set up for online filing, these will be a better option. These simple versions are designed to be no more complicated than a spreadsheet so should, with a little initial guidance, be suitable for those who have a modest number of transactions.

For those who decide to make the most of this situation and choose full accounting software there are many options available, each with their pros and cons. We are here to help you through this process, and talk through with you what you want from the software in addition to the necessary online filing.

It is never too early to start planning, especially if this will involve arranging training for either you or your staff.

For assistance with this contact Gilchrist & CO now.

UK Should Support, Not Penalize New Digital Tax Filers: CIOT

by Amanda Banks,, London

07 July 2017

The UK tax agency should adopt a light-touch approach to penalizing taxpayers who fail to meet the new digital reporting requirements that will be introduced from 2019, tax experts have said.

Under its Making Tax Digital initiative, the Government will require taxpayers with a turnover exceeding £10,000 to maintain digital accounts.

The Chartered Institute of Taxation has said that the UK tax agency, HM Revenue and Customs (HMRC), should allow taxpayers a considerable period of time to adapt to the new requirements, with lighter penalties and filing extensions for a limited number of initial defaults.

"The Making Tax Digital (MTD) project will present significant technological and logistical challenges to the many small businesses and landlords which are not currently maintaining digital records or interacting with HMRC on a frequent basis," said Adrian Rudd of the CIOT. "It is important that the penalty sanctions for the new regime reflect this, particularly in the early years."

In its submission to HMRC, the CIOT recommends that penalties are visible to taxpayers and their agents, and must not accumulate without the taxpayer becoming aware of them. It added that penalties must be kept simple, so that they and the policy intention behind them are easily understandable to the ordinary taxpayer. It added that there must be a straightforward right of appeal against the imposition of a penalty.

Because of the significant increase in reporting obligations, the CIOT argues the penalty amnesty for MTD should be similar to the three-year penalty amnesty for the smallest businesses when Real Time Information (RTI) was launched in 2013. Under RTI, employers and pension providers send HMRC information each time they pay their employees.

Rudd said: "There is a heightened risk that people with several forms of income will regularly face fines for lateness once the amnesty period is over. Take the example of a taxpayer who is VAT registered, has a trade and has a buy-to-let property. They may have to get used to meeting up to 15 MTD deadlines year, over and above their existing obligations under Real Time Information, etc.