HMRC's plans and implications
HMRC has published its six long awaited Making Tax Digital (MTD) consultation documents, setting out its proposals and options for comment until 7 November 2016.
This note summarises the key proposals, under which most businesses and landlords will have new requirements for record keeping and reporting to HMRC as well as compliance powers, new penalties, other administrative changes and updated accounting requirements. Despite the delay, some taxpayers are still expected to report from 2018.
Who is likely to be affected?
- Unincorporated businesses and landlords with gross income in excess of £10,000pa.
- Partnerships, including LLPs.
- Limited companies.
- Trusts.
Who is unlikely to be affected?
- The largest companies, although the threshold, being consulted on, is to be decide.
Phased in start dates
A basic pilot system is due to start in 2017, with expected compulsory start dates of:
| By Tax | Start date: |
| Income tax & NIC – larger businesses and landlords | April 2018 |
| Income tax & NIC – smaller businesses > £10k turnover; VAT | April 2019 |
| Corporation tax | April 2020 |
We will aim to update clients on further details as they emerge and as our own plans on assisting clients develop.
Digital records
Regardless of whether an agent is used, businesses and landlords will be required to maintain accounting records in a recognised digital format, using a software package compatible with HMRC's systems. Digital reporting can be sent direct from the software.
Digital reporting – in year and end of year
Business and landlords will have to report online quarterly, with an end of year (EOY) declaration to HMRC from the software. The reporting deadline is unclear but likely to be a month after the quarter end. Agents will be able to file on behalf of clients.
The content of reports will vary between taxpayers, depending on their digital requirements. Small businesses in the voluntary cash basis, which is now expected to be extended to businesses with turnover above the VAT threshold, will report cash transactions for the quarter. Unincorporated landlords may be able to opt for the cash basis. Other businesses and trusts are expected to report on an accruals basis.
Penalties and other tax administration
HMRC will be able to enquire into an EOY declaration, have information powers to check a tax position, discovery powers and only send prompts or nudge messages about in-year submissions. Penalties, notified online, for any late submissions or tax will work in a similar way to the motoring points system and eventually replace the VAT default surcharge system. There is no change to error penalties or mandatory payment dates, although a voluntary pay as you go system has been proposed. HMRC says penalties will not be charged until taxpayers have been in the new system for 12months.
Why change?
- Tax gap - HMRC says their research indicates that many small businesses do not keep contemporaneous records, leading to £6bn+ error. HMRC thinks real time recording and reporting will reduce this and more than pay for the £1.3bn cost.
- Reduced burdens - In addition, HMRC thinks reporting quarterly will be less burdensome for HMRC and for business than their agent doing it annually.
- 'Fairness' - HMRC accepts that additional reporting may not reduce burdens for larger business nor close the tax gap, but will involve them so as to be seen to be fair.
Impact for tax agents? The digital platform will attach to digital tax accounts (DTA) that are have been rolled out for taxpayers. Agent access through the new Agent Online Self Serve (AOSS) system is expected in 2017. S&W is heavily involved with the consultation through our software suppliers, our professional bodies and direct contact with HMRC.
We have taken care to ensure the accuracy of this publication, which is based on material in the public domain at the time of issue. However, the publication is written in general terms for information purposes only and in no way constitutes specific advice. You are strongly recommended to seek specific advice before taking any action in relation to the matters referred to in this publication. No responsibility can be taken for any errors contained in the publication or for any loss arising from action taken or refrained from on the basis of this publication or its contents. © Smith & Williamson Holdings Limited 2016.
