Making Tax Digital

Making Tax Digital – MTD – is HMRCs ambitious strategy for moving all business taxes to a digital platform.

Its worth saying that at the time of writing, Summer  2017, there is a lack of detail available.  HMRCs first consultations ended in November 2016, with initial responses in January 2017, and we are promised further detail throughout 2017.  The latest announcements, 13 July 2017, put the implementation timetable back significantly, reflecting the realities of Brexit and the weak government.

The original timetable was incredibly ambitious, and it was hard to see how HMG/HMRC would have managed this alongside the ordinary work of government, taxation and the shadow of Brexit.

As a firm Whitefield are committed to supporting our clients through this change, but it needs to be clear there will likely be cost implications both on our fees and the need to purchase or rent suitable software for those businesses not using software packages already – its unclear whether spreadsheets will be allowed in this context.

We will keep people updated.  Meanwhile, this is how its shaping up:

Key aspects are:

  • Businesses and Individuals will have a “Digital Tax Account” into which assorted information will be collated.
  • Businesses must keep all accounting information in a programme or app which can communicate directly with HMRC – no more paper records.  A late concession form HMRC is that spreadsheets can be used but thet will have to communicate with HMRC systems “possibly via additional software” (their words, paraphrased – no idea what this software will be)
  • Send updates to HMRC four times a year, with details of income, expenses and profit – HMRC is at pains to say these are not quarterly accounts, although to most of us looking at the proposals that seems like semantics.  There will need to be a year end submission as well, for annual adjustments, and the annual Self Assessment for other items – so in effect six returns a year.  Some businesses will be eligible just to send “three lines” – income, expense and profit – but its unclear whether this concession is more than a fig leaf.
  • Exemption for businesses with turnover below £10,000
  • Applies to landlords as well as sole traders/partnerships/companies  possibly also to individual taxpayers in receipt of “other income”, eg company directors and dividends

Proposed implementation dates:

The original time scales were:

  • Summer 2017 roll out of Digital Accounts
  • April 2018 – for sole traders/partnerships and private landlords with turnover above the vat threshold (currently £85,000) in respect of Income Tax/NI
  • April 2019 for sole traders/partnerships and private landlords with turnover below the vat threshold (currently £85,000) in respect of Income Tax/NI – businesses with turnover of less than £10,000 exempt
  • April 2019 for VAT returns to be done via software rather than government gateway
  • April 2020 for Corporation Tax

Digital Tax Accounts:

These are intended to replace Self Assessments, although they are in essence the same obligation under a different name.

  • Some information will feed in automatically, eg information from employers regarding pay and benefits, and savings income from banks/building societies
  • Other information will come in from the MTD obligations of businesses/landlords
  • Some information will need to be entered manually – eg dividends received by individuals.
  • The taxpayer will then need to certify completeness

How will your relationship with Whitefield change?

In essence the Digital Tax account, and its sign off is little different to the existing Self Assessment return for individuals and CT600 for Companies, and its likely we will continue to do this for you in lieu of self assessment.

In terms of the in year submissions for businesses, there are various options:

  • Some businesses will do these themselves with minimal involvement from us, and we will deal with the year end submission and ad hoc queries – its anticipated this would be priced similar to existing services to our clients.
  • Some businesses will do these themselves but ask us to check them and provide support with their software. Again we would deal with the year end submission – its anticipated this would be priced slightly higher than current services, although there are a lot of variables and uncertainties here.
  • Some businesses will want us to do maintain their mandatory computerised records for them, and do all the quarterly and annual updates.  This would be a premium service from our perspective.  Paper work could be sent to us “brown enveloped”, via scan, or using spreadsheets.

There are more uncertainties than certainties at present, but we are committed to a good value service for our clients, and a choice of levels of support.

Clearly on top of our fees there are the costs of buying suitable software, and this will have a bearing on solutions and cost effectiveness.  HMRC believe that software companies will provide both free and paid software for businesses, and HMRC don’t intend to provide their own software.  Its hard to believe that free software of any quality will be provided by commercial software companies.

For our PSC clients, there will be a need to think about Digital Tax Accounts for both the company and shareholders, and its not clear how DTAs will update for things like dividends – will be be via the company accounts feeding into the shareholders DTA, or a separate manual update?

In terms of software choices, most mainstream programs should be MTD compatible.  Whitefield have partnered with FreeAgent which we believe will offer most of our clients an economical way of meeting MTD obligations.  We are road testing FreeAgent with a selection of clients during 2017 in advance of offering it across our client base.

Other contenders are Sage, QuickBooks and Xero in terms of paid software, and possible Wave in terms of free software.  We will endeavour to support all of these, alongside what ever option remains for Spreadsheets.