The unanswered question on whether HMRC will provide free software for its Making Tax Digital project has created uncertainty among businesses, individuals and landlords, with VAT reporting starting in April 2019 after implementation was pushed back a year due to time constraints.

Free software

Software providers have voiced their concerns about not being able to provide free services due to the costs which will occur when making, maintaining and running the programmes required for Making tax Digital.

Xero’s managing director, Gary Turner, told CCH Daily that the software provider would have programmes available by the start date of Making Tax Digital, but it would not be available for free.

Turner said:’ We already engage with HMRC for online VAT filing, payroll and the Construction Industry Scheme (CIS) so we will absolutely be adapting Xero to work with the new Making Tax Digital application programming interfaces (APIs) when they are finally available.

He also stated that software companies should not exploit the fact that lots of taxpayers and businesses will have to pay for software in the future.

 ‘HMRC has to ensure that Making Tax Digital is affordable and accessible for universal adoption but this should not be an opportunity for companies to make a lot of money off of the back of that.’ Turner explained. ‘We are not approaching Making Tax Digital as a way to exploit an opportunity where all of a sudden lots and lots of people will have to pay for software but nor do we think that it is commercially viable to build a sophisticated web service for free.

‘We cannot see how we would deliver our level of service to our customers for free, it would mean compromising something and we do not like the thought of that.’

AutoEntry, an add on partner of Xero and data entry service, also agrees that free software will not be able to be provided. Brendan Woods, founder and CEO of AutoEntry said: ‘It’s not really a reasonable request to ask or expect software companies to provide free software unless HMRC create one. It is hard to make software free as building software is expensive especially if it is for accounting and needs vigorous testing.

‘Accounting software is cheaper than it ever was so the cost issue of Making Tax Digital is less of a concern. The issue is getting small businesses and sole traders etc into the mindset that they will have to change. Using the software is not hard once you start to do it. You choose an app, enter in receipts and send it off, people just have to get used to doing it more regularly.

‘Making Tax Digital will be better for everyone, once people get used to it they will never look back.’

Timing

Making Tax Digital has faced lots of criticism from all industries over its implementation timeline. Following this backlash, in July 2017 HMRC announced that it would be pushing back implementation by at least two years until 2020 except for VAT reporting which will be mandatory from 2019.

Prior to this announcement there were concerns about the lack of dialogue and information sharing between the commercial software developers and HMRC, with the software providers claiming they would not have any programmes ready before the rollout of Making Tax Digital.

However, Turner now says that Xero will have its software ready for Making Tax Digital before the deadline date.

Turner said: ‘It would have been a disaster if HMRC had gone ahead with the original timetable. We are completely committed to building compatible software and are looking forward to having a digital tax system. However we cannot force feed five million businesses with an app in a fortnight, it is going to take years.’

When asked whether he thought software providers would be ready by 2019 Woods said: ‘I think there will be solutions by 2019 but I do not think it will be completely black and white. It will be a case of the software not necessarily being able to do everything that everyone hoped, but 80% of it will be there.’

In January 2017, HMRC confirmed that it would retain Excel spreadsheet reporting under Making tax Digital. Although this decision was welcomed by the tax profession, it raises compatibility issues as HMRC’s internal IT system will not be able to directly import data from spreadsheets; it will have to go through a third party tool before it can be used by the tax authority.

Report by Amy Austin