The cross party Treasury Select Committee has examined the government proposals for the complete digitisation of accounting records and tax returns coupled with the requirement for quarterly reporting. The opinion of the Committee following its review backs requests made by the professional community to delay implementation of Making Tax Digital (MTD).
Under the proposals all but the very smallest businesses and many individuals who have to file a self assessment return will be required to submit quarterly updates to HMRC showing income and expenses, followed by an annual end of year reconciliation.
It is proposed that this new reporting will start from 1 April 2018 for some businesses and phased in such that everyone affected will be filing digital quarterly tax information from 2020.
The concept was originally announced in the March 2015 budget when the Chancellor declared “the end of the tax return” in his pledge “Making Tax Easier”. The original idea being, that for the majority of taxpayers, HMRC already have access to most of their financial information and so could pre-populate tax statements for approval. HMRC and the government thought this could further eradicate tax evasion and therefore collect more tax.
By December 2015 the emphasis had shifted from “Easier” to “Digital” and instead the transformation has become focussed on the digitisation of data by businesses and individuals and the quarterly reporting and associated penalty regime.
It is estimated this could affect between 2.5 and 5 million businesses.
Consultation papers on the proposed details were issued in Summer 2016 and responses invited. The overwhelming consensus is that the process is being rushed in too quickly. HMRC themselves have slipped in their original timetable for consultation and response, so the professional community and interested parties are perhaps justified in having serious concerns about HMRC’s ability to deliver such a transformation in a short timeframe.
One major hurdle is the software required to maintain and upload digital records. HMRC are suggesting “free software” should be made available although there is no detail who is going to supply this and how adaptable it would be for the myriad of different industries and accounting needs. Equally, there is the suggestion that HMRC won’t accept Excel Spreadsheet Formats, which is a shame as this is the tool of choice for many small businesses.
There is consensus that digital reporting is a positive move and clearly the future for the interaction between the taxpayer and HMRC.
The Treasury Committee have agreed that more education, testing and clarity of the rules is required before it can be safely implemented. To achieve this, the start date should be delayed until proper evidence and trials have been undertaken. Let’s watch this space to see if HMRC take any notice!