The consultation period has finished and HMRC’s reaction to the 3,000 responses to their consultation documents have now been published. Making Tax Digital (“MTD”) is coming. So What do we now know? Not a lot!
Despite fears expressed by various representative bodies as well as by members of the House of Commons Treasury Committee that HMRC and their systems will not be ready, HMRC has said that there will be no delay in the introduction of MTD. It has been announced that MTD will apply from April 2018, as originally announced, for Income Tax. This will affect all individuals and partnerships who have business income or property income except for:
- Partnerships which have a turnover in excess of £10million;
- Self-employed businesses and landlords with a turnover below £10,000. For these, MTD will be optional.
Therefore, individuals in employment and pensioners will be exempt, unless they have a secondary income from self-employment or property in excess of £10,000.
There are a few relaxations announced:
- Businesses can continue to use spreadsheets to record income and expenditure. They will, however, need to link those spreadsheets to compatible software in order to send in their quarterly returns.
- Businesses currently eligible to submit three-line accounts will be able to continue to do so.
- Businesses who genuinely cannot get online, ie due to disability or geographical location, will be exempt.
- There will be a 12 month period for people to get used to MTD, during which no penalties will be payable.
Businesses and individuals caught up by the MTD regulations will need to report quarterly to HMRC. That much we know. What we do not yet know is what period needs to be reported quarterly, and when. Nobody has yet told us that the MTD proposals are anything other than a change to a new reporting system. There has yet been no indication that it is a fundamental change in the basis of taxation that could have a major effect on the tax payable by many taxpayers. Therefore, we can only work on the assumption that the basis of taxation will remain as at present. If this is not the case, and as this change is going to happen in just over a year, then we consider this failure would amount to a misuse of power.
This is the biggest change to the tax system since the introduction of self-assessment in 1997 when the detailed proposals were published several years in advance. This article is being written in February 2017. For HMRC, and the government, not to have published more details of how this change in April 2018 is to be implemented indicates the total contempt that these bodies treat the small business community, or “customers” in their parlance, in this country!
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