Light at the end of the tunnel? Nick Forsyth looks at the Treasury Committee Report on Making Tax Digital #MTD

Nick Forsyth Accountant EssexPosted by Nick Forsyth:

Monday morning (16 Jan 2017) brought news of the 50 page report from the House of Commons Treasury Committee on Making Tax Digital (MTD). Despite it being January I worked through the text and found it to be a document of hope which, if taken seriously, should assist in bringing some sense to what needs to be done to make the new digital system work.

Many of us aren’t against changes to the system and more digitalisation being brought in but the trade-off is to make sure that whatever comes in is sensible, sufficiently tested and robust enough to do the job. Thus far it’s an area that HM Revenue & Customs don’t have a great record in so any delay to the proposed start date of 6 April 2018 whilst systems are put into place will be welcome.

We can’t take this report as a guarantee that a deferral will be granted or that the thresholds already set out will be increased but I think it would be fair to say that the Committee share many of the views that Lambert Chapman have. These are also shared by the majority of Practitioners we have met at meetings to discuss Making Tax Digital. The proposals will be confirmed later this month after Government Officials and the HM Revenue Officers dealing with the Consultation have finished trading notes and debated fully the counter ideas put forward to them late last year.

I’m sure those Officers have read about the threshold being increased from the current £10,000 of revenue to a figure somewhere in the region of the VAT threshold. I might suggest to add another nought to the proposed schedule and maybe increase the VAT to match. The Treasury Committee report pointed out that most businesses have costs and therefore with sales at £10,000, a lot of those people brought into the system wouldn’t be paying tax and so what was the purpose of this?

My thought – after attending a consultation event in Milton Keynes – was to make everyone do their bookkeeping regularly; at least once a quarter rather than the annual event that some complete purely to file a tax return. If you do your books once a year, it is likely that you will make mistakes as your memory can’t support you as well over 52 weeks as it can over 7 days. But will this mean more tax is collected?

HM Revenue & Customs thought so but had to accept, after a question from Committee Member Jacob Rees-Mogg, that they may well have worked out the tax take on the additional revenue only rather than deducting the extra costs incurred by the business in producing the quarterly returns that will be required. If they do this, it might actually cost the Treasury money rather than the other way around!

So we wait for the official announcements nearer to the self-assessment deadline to hear what may happen. It is likely that the threshold will increase and the implementation may be delayed; but it won’t be going away so we will still be looking at what businesses will need to be thinking about during 2017 so that they have prepared properly should they be caught by the legislation.

This may include making changes to bookkeeping, certainly if you do manual books and maybe if you utilise Excel spreadsheets, as these may not allow you to transfer information into HM Revenue & Customs. Therefore expect to hear lots from the online bookkeeping brands such as Xero, QuickBooks, Kashflow and Sage about why they are the best. If you are on social media, you will already be aware of crazy prices as they try to buy market share.

The suggestion is that HM Revenue & Customs will only want your totals on a quarterly basis to prove you’ve done your books – as many of you do now with VAT returns – and in return they will calculate for you an interim tax bill that will be shown in your digital tax account so that if you want to pay them money, you can do it voluntarily. This all sounds great, but is it a return showing how your books stand 'warts and all' each quarter or is it a fully reconciled 'final' set of books each quarter as you would send over with your self-assessment tax return?

At this stage nobody knows. Certainly if it is the latter I think that is unnecessary and one that will bring a lot of additional cost to businesses and produce the stress and pressure in the profession that we currently see in late December and January on a quarterly basis. That can’t be an objective of the new system unless HM Revenue & Customs don’t understand what is needed to be done to make a tax return. From the consultation meeting it didn’t appear that they did but I was pleased that they took detailed notes of the type of year-end things that we do.

Whatever the announcement I think that Making Tax Digital will be here to stay, so if you currently run manual records for your business accounts keep your eyes and ears open as we will be looking to start an education programme to equip you with the skills that you will need to fit in with the new requirements whenever they get introduced. A delay will be welcome but please don’t view it as a further opportunity to keep your head in the sand. Use this time to make a measured decision and develop skills so that you feel as confident as you do now to complete your own records and keep your costs under control. We’re here to help in this regard so pick up the phone and ask our advice or book in for a Learning Session if you just want to find out more.

Lambert Chapman have spent time studying the proposals and intend to run Learning Sessions, Product Demonstrations and Workshops once the proposals are confirmed to help clients and businesses understand the proposals and decide what action they need to take. These sessions will be held near each office to limit the travelling you need to do so please look out for them in our Newswire and on our Events Page.

In the meantime, you can register your interest by emailing our Events Team

January 2017

Disclaimer

The views expressed in this article are the personal views of the Author and other professionals may express different views. They may not be the views of Lambert Chapman LLP. The material in the article cannot and should not be considered as exhaustive. Professional advice should be sought in connection with any of the issues contained in the article and the implementation of any actions.

What Next?