Making Tax Digital

28 September 2016

Amidst the headlines and upheaval of the EU referendum, change of PM and Chancellor, and the disarray in which the opposition finds itself, the more mundane wheels of government may have appeared to turn a little slower than usual over the Summer recess. However, the Government’s flagship policy of Making Tax Digital (MTD) is continuing to sail along its zig-zag course, attracting attention from politicians, civil servants, businesses and professional advisers alike.

The headline aim of implementing quarterly tax reporting for businesses and property landlords by 2018 remains in place, although a one year deferral has already appeared for ‘slightly larger businesses.’

On 15 August, a set of six consultation documents were published with a grand total of 243 pages and 149 questions for respondents to consider. So it’s a good job that the full Parliamentary recommended period of 12 weeks has been allotted, with responses to be submitted by 7 November 2016.

The consultations are the first serious attempt by HMRC to consider some of the more practical implications which the headline digitisation policy will have, including:

  • a system of voluntary pay as you go tax;
  • a reform of the basis period of assessment for the self-employed;
  • how and when taxpayers might make the sort of non-cash basis adjustments to their profits and losses, amendments to the simplified cash accounting, and issues like how seasonality and losses might come into play;
  • access for taxpayers to the appropriate digital tools to comply with the system;
  • reform of the penalty system for the new reporting landscape; and
  • considering industry specific issues, like the Construction Industry Scheme, and making the system work for property landlords as well as business owners.

Back in April 2016, MP and chair of the Treasury Committee Andrew Tyrie, wrote an open letter to the Financial Secretary to the Treasury voicing concerns about MTD; warning that far from being a simplification and cost saving for taxpayers, it seemed more likely to be a burden and a cost. That letter concluded:

“It’s not too late to do something about this. A thorough impact assessment is the minimum required before proceeding with the Government’s proposals to make digital record keeping compulsory”.

Five months on, Mr Tyrie has repeated the exercise with an open letter to the new Chancellor, Philip Hammond, responding to Mr Hammond’s request for MTD legislation to be brought forward in the Finance Bill 2017. It picks up on what appears to be some naivety, explaining that if things go ahead as planned there will be no time to consider the consultation responses before looking to publish the requested draft Finance Bill clauses.

Once again Mr Tyrie’s letter concludes with well thought through words of caution and advice;

“Implemented carefully, it could do some good. But it could also do much harm.

 The consultation is therefore crucial. It needs to be meaningful. There may be a case for delaying the implementation of MTD. A year’s extension for an unspecified group of businesses may not be enough.

 There may also be merit in piloting the systems. From this, the lessons from customers’ experiences can be learnt, and well before digital reporting is made mandatory.

 HMRC’s proposals are major changes. There remains considerable cause for concern with the proposals. Better to get it right than to stick to a rigid timetable”.

We couldn’t have put it better ourselves.

Tax is undoubtedly heading toward further digitisation, and we’re all hoping that input from the likes of Mr Tyrie will act as a steady hand on the flagship’s rudder. If you would like to discuss how the changes might affect your business, or want to decipher which digital solutions are available  to you, please get in touch with your usual UHY contact or telephone Graham Boar on 01462 687333.