On 31 January 2017 the Government published the responses to the six consultation documents on Making Tax Digital (MTD) and incorporated links to draft primary legislation, for this year’s Finance Bill.
There was an unprecedented 3,000 responses directly to the consultations or via the summary consultation document for self employed and smaller landlords.
Much of the detail has yet to be published and will be the subject of secondary legislation, eg partnerships, LLP’s complex businesses, the cash basis simplification and the accountant-client relationship for MTD submissions.
The proposals are proceeding along the proposed legislative timeline, with mandatory quarterly updates due to begin for unincorporated businesses in April 2018 but with a voluntary pilot scheme for hundreds of thousands of businesses, from April 2017.
Key points:
£10,000 exemption (for small businesses and Landlords):
The government needs more time to examine this to decide if the current proposed exemption is adequate.
The government is also considering measures to support the group just above the threshold, wherever it sits, to give them more time to prepare.
Both of these issues will be clarified before the MTD legislation appears on the Finance Bill in July.
Cash basis:
The turnover threshold to enter the cash basis for small (unincorporated) businesses will be raised to £150K pa from April 2017 (currently £83K).
Unincorporated property businesses previously unable to use the cash basis will be able to do so if they have receipts of less than £150K pa.
Rules on capital expenditure disallowance will be relaxed from April 2017 making more capital expenditure tax deductible.
Three-line accounts:
Self employed businesses (and landlords) currently using three line accounts on their self assessment tax return (turnover < £83K pa), will be able to submit their quarterly updates with only three lines of data – income, expenses and profit.
Spreadsheet businesses:
Will be able to continue using spreadsheets for record keeping, but will have to ensure that the spreadsheet meets the requirements for MTD. That is likely to involve combining the spreadsheet with software in some way.
Charities:
Will not need to keep digital records, although their trading subsidiaries will.
Digital records:
The requirement to keep digital records does not mean that businesses have to make and store invoices and receipts digitally.
Year end submissions:
Activity at the end of the year must be concluded and sent either by 10 months after the last day of the period of account or 31 January, whichever is sooner.
Software:
HMRC has been working with 18 software companies in the initial private testing beta phases of the project. Several developers hope to have a product available before April 2017. They expect to see a mixture of free and paid-for tools.
Penalties:
There will be a 12-month “soft landing” to become familiar with the changes before any penalties for late submission will be applied. HMRC will consult again in the Spring on the penalty model. Penalty interest, as charged at present, is still thought to be the best sanction.
Voluntary quarterly payments:
And how they can be made, allocated and repaid for self employed and landlords have been generally agreed, however details have yet to be published.
Employed people:
In 2017 HMRC will start to use PAYE information during the tax year to calculate whether the right tax is being paid. In the short-term, customers will still receive letters directing them to their digital tax account to check this, but in future, customers will be prompted digitally to check their tax account.
