Brian Palmer, Tax Policy Adviser at AAT, gives us the latest on the Government's bold new plans to make tax digital
Making Tax Digital – the story so far
Earlier in August, HMRC published several (long-awaited) consultation papers relating to the Government’s Making Tax Digital (MTD) agenda. MTD is a £1.3bn Government investment designed to transform the tax system in the UK, in order for it to become more effective and efficient, and to make it easier to pay the right tax at the right time.
Making Tax Digital was conceived during the 2015 Budget, when then-Chancellor George Osborne set out a vision for a transformed tax system under the heading of “the death of the tax return”.
This was followed by the publication of the “Making Tax Digital – roadmap” in December 2015, which outlined how individuals and small businesses would be able to access their own secure digital tax account in order to interact with the UK tax system from April 2018 onwards in order to notify HMRC of changes in status, file returns, pay tax and obtain repayments.
Since the start of 2016 HMRC started informal consultations in order to inform its thinking over a requirement for all but the owners of the smallest unincorporated business or landlords to digitally store the their business records. This includes recording the transactions that they enter into using software and/or apps, and for many, the requirement to update HMRC on their activities by filing quarterly in-year-returns.
Due to a number of factors, the most notifiable of which was the EU referendum and the fallout from the result, the formal consultation documents were held up from a widely anticipated March issue date until August.
The published documents cover a wide range issues including making better use of information, and providing an overview of MTD for the self-employed and landlords.
HMRC has heralded MTD as cutting the red tape for small businesses, with the latest announcements confirming that many will not initially need to update HMRC with quarterly tax returns or keep their records digitally, but can still benefit from MTD.
An HMRC spokesperson has advised me in response to the pre-consultation-engagement that three main concessions have been introduced, all of which seem eminently sensible:
- A further 1.3m people whose primary source of income is below £10k and is either from self-employment or from the renting of property will not initially be required to report on a quarterly basis.
- HMRC will consult on plans to remove an additional tranche of people whose primary source of income is above £10k (up to an as yet unestablished ceiling) and is either from self-employment or from the renting of property will not initially be required to report on a quarterly basis.
- HMRC will consult on providing financial assistance to those with unincorporated businesses at the micro and nano end of the scale in order to mitigate the costs that they might incur in achieving their compliance.
It’s clearly in the interests of employees, employers, tax professionals and Government to have a simpler and more aligned tax system, one which operates closer to real time. MTD has the potential for the UK to have the most digitally advanced tax system in the world. However, we are concerned for HMRC that they have set a very demanding timescale for achieving their aims – especially given the delays we have already seen during the consultation process. We want to work closely with them to help overcome these challenges.
Brian Palmer, Tax Policy Adviser, AAT
AAT (Association of Accounting Technicians), the UK’s leading qualification and membership body for vocational accountants. www.aat.org.uk/