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MTD and digital links: More of the same

24th Jul 2020
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On Tuesday 21 July 2020 Jesse Norman, the Financial Secretary to the Treasury confirmed that Making Tax Digital for Income Tax Self Assessment would become mandatory for many taxpayers in the tax year 2023-24.

When MTD for VAT was originally proposed there were questions asked as to whether HMRC were asking for details of all transactions to be sent to them electronically and many taxpayers were surprised to find that only the nine boxes of form VAT100 were to be sent electronically.

Digital links

The key difference, however, was that digital links were required to provide an electronic audit trail between the transactions and the nine VAT boxes. The problems caused by the coronavirus have held up making the digital links mandatory. But many people are already using digital links to generate their tax returns.

In many ways the principles of income tax self assessment are the same. Many of the figures on the SA forms are submitted electronically on an annual basis. However, business expenses for self employment and property rental (FHL and other property) will now have to be provided quarterly.

If a tax payer has monthly accounts, the monthly figures can be submitted to HMRC and then those are totalled up into a quarterly submission. The principle of digital links will remain the same – HMRC will want an electronic audit trail to track back from the summary figures in returns to the transactions that underpin them.

There are, however, a larger number of totals being provided to HMRC on the SA100 series of forms and there should be digital audit trails for each of these. The biggest source of this type of information will be from different types of property businesses, and from data on bank account interest received. That interest is reported by bank account rather than just a total for net and gross. Also charitable donations are reported on the basis of totals by charity.

The Construction Industry Scheme will demand a more substantial shift, however. If a subcontracting taxpayer wishes to report a different deducted figure on their tax return to that which has been reported by the contractor(s), then they need to submit detailed figures about the contractors they have worked for, what the payments were, how much tax has been deducted and the relevant materials costs.

Bridging the gaps

In principle it remains possible to use a bridging system from other accounting systems or spreadsheets. However, given the number of submissions that need to be made, bridging is likely to be quite a laborious process. With the new now looming, taxpayers should start considering what alternatives there are.

Taxpayers and their agents need to think carefully about the accounting periods to use. If a taxpayer is also VAT registered, they should aim to ensure the same starting dates are used for submissions both to MTD VAT and MTD ITSA. If the period dates don’t coincide, they will face quite a bit of additional work.

Some agents will take the view that they will avoid doing anything about this until it is mandatory. I would argue that this is a mistake. For an agent it is worth setting up one of their clients to participate in MTD ITSA as soon as is practical. That enables learning all the details of how it work before a lot of additional work needs to be done.

Replies (5)

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By DMBAcc
29th Jul 2020 13:55

Unfortunately the expected delays we predicted here some years back only serves to show that 2023-24 is probably a moveable feast. What HMRC and the big four accountancy bodies are not addressing is how an agent with say 60 clients, 40 of whom don't even own a computer, are going to be trained up in time for implementation. I do not provide book-keeping services so who will not only train these clients but also check that their inputs are correct? Who is going to ensure the quarterly updates go in on time. Quite frankly there won't be enough hours in the day to do this. What will happen during the June to September holiday season here in Cornwall when many of my clients will be more worried about making a living rather than submitting to the whims of civil servants who have never understood the self employed and who in the main treat us with derision. No one has ever deigned to even entertain the thought that self employed tax payers are trying to earn money not feed a tax computer. Our local MPs don't give a care to this subject. I will probably have to close my business and HMRC will have 60 clients without a clue. WHY CAN'T WE HAVE DIALOGUE BETWEEN MICRO BUSINESSES AND HMRC - WHY IS IT SO DIFFICULT?

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Replying to DMBAcc:
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By johnhemming
31st Jul 2020 10:36

The current position on timing is that the submissions need to go in before the tax return is finalised (aka crystallised). In a strict sense, therefore, the deadline for TY 23-24 is 31st January 2025.

For the purposes of seasonal businesses there is a good argument for doing any quantity of work when things are quieter. However, if doing things on a cash basis rather than accruals then downloading the bank statement and flagging it for tax purposes is probably best done on a monthly basis.

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Replying to johnhemming:
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By Peter-S
31st Jul 2020 11:52

johnhemming wrote:

The current position on timing is that the submissions need to go in before the tax return is finalised (aka crystallised). In a strict sense, therefore, the deadline for TY 23-24 is 31st January 2025.

For the purposes of seasonal businesses there is a good argument for doing any quantity of work when things are quieter. However, if doing things on a cash basis rather than accruals then downloading the bank statement and flagging it for tax purposes is probably best done on a monthly basis.

So for the suggested non-computer owning client base who is going to be doing these bank statement downloads?
The powers that be, in my view, do not seem to appreciate that a lot of people still do not 'do' computers and whilst most accountants could probably train and guide them where is the extra time going to come from to do this and do clients want to pay for it anyway. So we look at phone apps instead perhaps and expect all these busy types to be snapping their petrol receipts and bills for a tin of paint and uploading it and sending it somewhere. I just see years of inaccurate quarterly information being submitted at the micro end of the scale as I genuinely believe it will be beyond many to deal with it.

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Replying to Peter-S:
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By johnhemming
31st Jul 2020 18:53

There are lots of ways of doing this. As far as VAT went many businesses spent little money and things are working quite well.

There will be better and worse solutions to the ITSA question. There is a role for tax agents in assisting their client to have a better solution.

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By EnglishRose
03rd Aug 2020 19:36

I am hoping to be exempt as I jsut got my MTD for VAT exemption. Fingers crossed.....

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