Making Tax Digital to start in April 2018
HMRC’s Making Tax Digital reporting system is to go ahead as planned with an April 2018 launch for quarterly updating and reporting for sole traders, self employed and buy-to-let landlords, although plans for a major pilot starting this April are still sketchy and the exemption threshold remains up for review.
In a compromise on the original plan, the government has agreed to review the £10,000 exemption threshold as well as the deferral threshold, both of which will be confirmed before the legislation on Making Tax Digital is passed in the Finance Bill this July. Despite lobbying, the scheme will be mandatory with no soft launch period planned.
There have been a number of concessions with HMRC agreeing to let reporters use spreadsheets, although these will have to be processed via a third-party software tool before being downloaded in to the HMRC IT system.
Theresa Middleton, HMRC director of business customer and strategy told Accountancy: ‘The government has decided that it needs more time to consider the threshold issues, but they will be confirmed before July 2017. We received broad support for the direction of travel, although there was concern about the pace, costs to business and capability of the smallest businesses to make changes.’
An estimated five million businesses will be affected by the new reporting requirements and there will be no grace period for any targeted taxpayer group.
There will be a soft landing penalty regime for the first 12 months of operation with HMRC stating that penalties will not be enforced during the launch period, although the details still need to be ironed out in a further consultation this spring.
A user trial starts this April with 300 taxpayers signed up to test the reporting system, claims HMRC. The plan is to escalate the trial to around 400,000 taxpayers by October. Software developers are expected to work closely with HMRC to ensure that quarterly reporting software is available to trial by a range of taxpayers, although some developers have criticised the rushed nature of the testing and a lack of detailed IT specifications.
Middleton said: ‘We are thoroughly testing the system before it is rolled out to make sure that it is user-friendly. We want to make sure that the testing reflects the needs and is easy to use. We are trying to over-sample people with records on paper, for example.’
Responding to criticism of the lack of awareness of Making Tax Digital in the wider business community, she said: ‘We came in for some criticism from the Treasury Committee that the plans were rushed and there are concerns that landlords and small businesses do not know very much about it. We do have plans to raise awareness about it, but the priority is to work with agents and software developers.
‘We can more easily communicate with them than with five million small businesses. The agent services project needs to be delivered by April as we need agents to be able to join the Making Tax Digital trial. We are building a range of services, which will be available through APIs and some will be bundled, connecting directly with our system. It is very much part of our plan to enable agents to be part of the trial from April.’
‘From April 2017, the challenge will be to raise awareness but we do not want to rush out communications to landlords and small businesses without careful planning.’
The compliance costs for the first wave of quarterly reporting is estimated at £280 per person, according to the government’s own impact assessment. This is supposed to include software and training costs. The total cost of compliance will be at least £1bn, a figure which is disputed as being too low.
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The missing consultation on the upcoming rules for larger, incorporated businesses has still not been released.
Lords slate ‘ridiculous’ £10k mandatory threshold limit
HMRC’s £10,000 threshold for use of Making Tax Digital has been excoriated by members of the House of Lords economic affairs committee, who branded the proposal ‘ridiculous’ and unworkable.
HMRC first proposed the threshold
