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Making Tax Digital (MTD)
Until recently, we were facing radical changes to the tax system to accommodate this objective. Businesses (including landlords) were to be required to upload summarised accounts data from their accounts software on a quarterly basis. This information, plus details of other income was to be collected in a personal tax account which would automatically calculate future tax liabilities.
The process was timed to be commencing in April 2018 and be completed by April 2020.
The accountancy profession was united in opposition to the undue haste of the implementation process and the obligation that all businesses with turnover more than £10,000 would be required to invest in acceptable accounts software and make quarterly uploads.
It would seem the government has listened. Last week they announced:
Under the new timetable:
• only businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records and only for VAT purposes
• they will only need to do so from 2019
• businesses will not be asked to keep digital records, or to update HMRC quarterly, for other taxes until at least 2020
Making Tax Digital will be available on a voluntary basis for the smallest businesses, and for other taxes.
This means that businesses and landlords with a turnover below the VAT threshold will be able to choose when to move to the new digital system.
As VAT already requires quarterly returns, no business will need to provide information to HMRC more regularly during this initial phase than they do now.
It seems clear from this announcement that MTD is proceeding, but at a much more sensible pace.
VAT registered traders will need to have MTD compatible software in place by April 2019, and all businesses including property businesses with turnover above the VAT registration threshold (currently £85,000), will need to be ready to make the quarterly uploads of accounts data by April 2020.
Businesses with turnover below the VAT threshold will be under no obligation to use the MTD process, but can join in on a voluntary basis.
We will continue to work with clients to ensure they are ready to meet their obligations. It is gratifying to see the pace of change in this area slow down. This will give affected business owners and their advisors more time to implement the changes required and make more considered decisions about the software they will use to implement their links to HMRC’s MTD systems.
A recent First Tier Tribunal case examined whether a company director had an obligation to submit a Self Assessment tax return without receiving a notice to file. The taxpayer in question appealed against penalties totalling £1,300 relating to his 2014-15 Self Assessment return on the basis that he had a reasonable excuse for his appeal.
Part of the appeal was based on the interesting anomaly that there is no legislation stating that an individual must file a tax return on the sole basis that they are director of a company. The taxpayer also contested that he had never received a notice to file a 2015 tax return and that had he done so, he would have filed a return immediately, and that as he had no liability that tax year, it would have been very easy and straight forward for him to do so.
HMRC’s guidance states:
'As a director of a limited company, you must: register for Self Assessment and send a personal Self Assessment tax return every year.'
The Tribunal agreed that this guidance does not have the force of law and that the taxpayer was under no obligation to follow it. The Tribunal went further, saying that the guidance does not accurately reflect what the law says. The taxpayer also stressed that he had paid tax on his employment income through PAYE and had no further tax to pay.
The Tribunal agreed that the taxpayer had a reasonable excuse and his appeal against the penalties was allowed in full. It is unlikely that this case will change HMRC’s position in respect of directors of limited companies being required to file tax returns annually, but this case has highlighted an apparent discrepancy between HMRC's guidance on this matter and the underlying legislation.
Planning note: We are waiting for the dust to settle, and for informed opinion to reach a conclusion on this issue, before considering any action that may be required for our director clients. To some extent, the matter will be resolved if HMRC's plans for Making Tax Digital proceed. Over time, this process will lead to the end of a requirement to submit an annual tax return for most taxpayers.
There is evidence that HMRC’s Making Tax Digital (MTD) implementation team are working with advisors and their clients to beta test the computer systems that will drive the quarterly upload process when it is timed to begin April 2018.
MTD aims to have taxpayers’ income and other relevant details uploaded to a personal digital account. When completed, this new system will eventually remove the necessity of a formal tax return each year.
Banks, employers, pension providers and business owners (including landlords) will have an obligation to upload data to HMRC. The information gathered will allow for the estimation of future tax liabilities in real time.
At various implementation dates, they will be required to make quarterly, summarised uploads of their accounts data and undertake an annual online check.
At present, HMRC is not providing direct access to taxpayers to comply with their MTD obligations; instead, business owners will need to use an accountant or other software that is authorised for this purpose.
The present timetable, when businesses will need to start uploading data, is:
• April 2018 - the self-employed, including landlords, with a turnover in excess of the VAT registration threshold, presently £85,000.
• April 2019 - the self-employed, including landlords, with turnover below the VAT registration threshold.
• April 2019 - submission of VAT returns
• April 2020 - companies and other organisations subject to Corporation Tax.
Businesses with income below £10,000 will be excluded from the MTD quarterly upload processes.
Incredibly, the legislation setting out the rules and regulations for MTD has still not reached the statute books. It was included in the Finance Bill 2017, but the relevant sections and schedules dealing with MTD were deferred for consideration until after the recent election. Professional advisors, software providers, and the business community are looking forward to some progress in this area. Presumably, the deferred legislation will reappear in a summer Finance Bill. The intention, we would assume, is to tidy up these loose ends before members of parliament break for their summer recess.
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