Making Tax Digital: the profession awaits some key details

The end of the reporting year on January 31 saw HMRC issue its response to the recent ‘Making Tax Digital’ – or MTD – consultations focusing on:

1. Bringing Business Tax into the Digital Age
2. Simplifying tax for unincorporated businesses
3. Cash Basis for property income
4. Tax administration
5. Voluntary payments
6. Transforming by use of third party data

According to HMRC, there was widespread support for the move to a digital tax system, with concerns centred around the pace of change and the capability of the smallest businesses and those who struggle with digital technology to adapt.

Thousands of agents and accountants also raised their concerns in relation to data security and their own ability to access digital services to support their clients. Quarterly reporting still remains a controversial issue.

Whilst some details were not covered in the consultation response, two thirds of accountants Thomson Reuters polled in the days following the release of the consultation response said that their priority is needing to know which of their clients are affected, and which are deferred. Other key technical details, such as how will taxable profits be calculated and what constitutes the basis periods, are yet to be decided.

That said, a number of decisions have been made about key aspects of the initiative.

For instance, we learned that businesses will be able to continue to use spreadsheets, as long as these meet the necessary requirements. This will likely involve combining spreedsheets with MTD-compliant software to allow for quarterly updates.

Furthermore, we have learnt that free software will be available to the most straightforward businesses. Whilst the exact details and definition of eligible businesses is yet to be decided, these simpler businesses are likely to be unincorporated, and without employees. No free software will be made available to accountants and HMRC is looking to maintain a register of MTD-compatible software.

Ahead of the release of the consultation response, The Treasury Committee also issued its own MTD report. This urged the Government to “abandon its plans for an initial threshold of £10,000” – stating that “The Committee has yet to see evidence strong enough to justify a threshold below the VAT threshold, £83,000.”

This is a view that is echoed by our own Thomson Reuters Making Tax Digital survey. We have found that 80% of accountants think that MTD (deferral to 2019) should be aligned to the VAT threshold of £83,000.

There was clarification around digital records. We know now that the requirement to keep digital records does not mean that businesses have to make and store invoices and receipts digitally. The digital requirement only relates to transaction data.

This means that MTD can just as easily be delivered via a desktop software solution.

Any landlord with more than one property will also be pleased to learn that HMRC has said that a single update can cover all properties – as long as the MTD software used is capable of storing all addresses.

Finally, we have also learned that 31 January is still the end of the reporting year.

In terms of tax administration, HMRC has said it will have no powers to enquire into quarterly updates, and that there will be no penalties for the first 12 months. What happens after that is under review – as are any decisions regarding late payments or interest.

HMRC has also said it will introduce legislation to cover the digital exclusion.

So it is very much full steam ahead for MTD. In the Budget to be released on 8 March, anticipation will be high for an announcement regarding the threshold limit, before MTD legislation is laid later this year.

Mark Purdue tax product manager at Thomson Reuters, has spent over 25 years' working in tax and specialises in Personal and Capital Gains Tax.