Making Tax Digital: HMRC Responds
31 January has always been an important date for tax. This year’s usual last minute tax return filling rush was accompanied by the release of HMRC’s eagerly awaited response to the consultation phase on Making Tax Digital (MTD).
What did we learn?
- While many expected the start date, originally planned for April 2018, to be bumped back, this was not the case. HMRC is pressing forward with the original launch date, now not much more than a year away.
- Of key importance to many small businesses, it was confirmed that using spreadsheets for record keeping will be compatible with MTD. Although businesses must ensure that their spreadsheet meets the necessary requirements and this may involve combining the spreadsheet with software.
- Businesses eligible for three line accounts (income, expenses and profit) will be able to submit a quarterly update with only these three lines of data.
- Free software will be available to businesses with the most straightforward affairs (likely unincorporated, no employees, turnover below the VAT threshold) although it remains unclear as to who would provide it, and when.
- There were some exceptions from MTD for charities and partnerships with turnovers over £10m were deferred from MTD until 2020.
- Digital record keeping does not require that all invoices must be stored digitally.
- Businesses will be given 12 months grace before penalties are applied.
- HMRC intend to pilot digital record keeping and quarterly updates with some business, starting April 2017.
What is still to be decided?
- While various details are still not yet finalised, the most important of these is the threshold at which MTD kicks in. HMRC’s original plans were at a turnover level of £10,000 but the majority of respondents to the consultation considered this much too low. Where this threshold is set will be crucial in determining which businesses fall within the scope of MTD from April 2018.
- It was also mentioned that some small businesses may be able to defer their entry into MTD, although which businesses would qualify and for how long they could defer is still being thought out.
- Further announcements may follow with the budget and are expected to be finalised as part of Finance Bill 2017, later this year.
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