MAKING TAX DIGITAL (MTD)
MTD will oblige taxpayers with income as low as £10k per annum to file returns at least 5 times per year.
It is estimated to affect 1.6 million companies, 2.4 million self-employed and 900 thousand landlords of residential property – TOTAL 4.9m taxpayers.
It will commence in 2018 for businesses with turnover above the VAT registration threshold (currently £85k). It will commence in 2019 for businesses with turnover 10k to 85k and in 2020 for Limited Companies and Large Partnerships.
HMRC do not envisage any change to the dates when tax will become payable.
WHAT IS THE RATIONALE FOR THE SYSTEM?
HMRC claim that their ultimate intention is to abolish Self Assessment Tax Returns.
Gov.uk website states:
‘Making Tax Digital is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs – meaning the end of the annual tax return for millions.’
They believe obliging taxpayers to regularly update their digital tax account will assist them in forecasting their tax liabilities.
It is hard to see how moving to a system of at least 5 returns per annum will make compliance easier for any small business.
OBJECTIONS TO MTD
HMRC do not currently have software and systems in place to make this work reliably.
The House of Lords economic affairs committee warned that the roll-out of the programme was “being rushed” and would impose “unnecessary burdens on small businesses”.
All the professional accountancy bodies in their responses to the consultation document stress that the proposals are being introduced too quickly.
It appears to me that the implementation of the scheme is being carried out in the wrong order in that under current proposals small business will have to implement the system first.
Many small businesses have no computerised record keeping systems in place, nor the knowledge to operate such systems. They will be obliged to invest in hardware and software and/or pay professionals to assist them. This will be simply unaffordable for many small businesses.
Most Limited companies already have such systems in place. Therefore applying MTD in the first place to such businesses is a more logical starting point than starting with small businesses.
PRACTICAL SUGGESTIONS TO LESSEN THE IMPACT OF MTD
It would be great to see the policy scrapped – realistically this is unlikely to happen.
MTD should be applied to Ltd Companies before being applied to other businesses.
HMRC should be obliged to have software and systems in place to handle the scheme and the Limited Company trial run should be for 2 years.
If successful, and agreed to be beneficial, then the system could be extended to other businesses over a certain agreed turnover (e.g. above the VAT registration threshold or a more sensible figure e.g. £250k).
It should not be applied to businesses with minimal turnover at any point.
For help with tax planning for your business and/or estate, feel free to call me on 028 796 31343, or email jb @ johnbarfoot.co.uk.