Tax Writer Taxwriter Ltd
Columnist
Share this content

Draft MTD response: Exemptions

3rd Nov 2016
Tax Writer Taxwriter Ltd
Columnist
Share this content

This is the fifth of six blogs in which I present my personal views on the questions in the consultation document MTD: Bringing business tax into the digital age

This instalment contains to key questions about which businesses should be exempt from MTD. My view is that all businesses with turnover under the VAT threshold (currently £83,000) should be exempt.

I also argue that the quarterly reports should be combined with the reporting for the quarterly VAT return (see my blog on quarterly updates). To achieve that coordination between VAT data and other accounting data the MTD quarterly reporting start date should be delayed until at least 2019.  

Do you agree? Please post your views below. I will be making a formal response to HMRC on behalf of the AccountingWeb community, and want to incorporate as many of your views as possible.

Q 29: What criteria should be applied in determining whether to exempt a particular business or business type from the requirements of MTD?

If the VAT turnover threshold is used for MTD, then the VAT registration rules can be used for MTD. Those rules already exist so no new law is required, and the rules are well understood by tax advisers. Businesses are very aware of the VAT threshold.

Q 30: Should charities be exempt from the requirements to maintain digital records and to update HMRC at least quarterly?

Charities should be exempt.

Q 31: Should trading subsidiaries of charities be exempt from the requirement to maintain digital records and to update HMRC at least quarterly?

Subsidiaries of charities should be exempt from MTD.

Q 32: Should CASCs be exempt from the requirement to maintain digital records and to update HMRC at least quarterly?

CASCs should be exempt from these MTD requirements.

Q 33: Should businesses within the insolvency process be included within the scope of the requirement to maintain digital records and to update HMRC at least quarterly; and are any special arrangements required for this group?

These businesses should be exempt from the MTD requirements.

Q 34: Which businesses should be included within a consistent definition of persons ‘unable to engage digitally’?

MTD should not be rolled out until there is fast broadband coverage across the whole of the UK.

Q 35: Do you agree that £10,000 annual income is an appropriate threshold for exempting businesses from Making Tax Digital? Do you have any other comments on how the exemption should operate?

Turnover of £10,000 is not an appropriate level of exemption. All businesses with turnover under the VAT registration threshold should be exempt from MTD quarterly updates and digital record keeping.

Reporting to HMRC after the year end may be a digital requirement, but that needs to be introduced very gradually, over a period of five years, as was the case with reporting PAYE online.

Q 36: Should the smallest unincorporated businesses that are not exempt have an extra year to prepare for Making Tax Digital? How should eligibility for this group be defined?

See answer to Q 28. No compulsory MTD updates or returns until 2019/20 at the earliest. Testing of the procedures for a full accounting period must be performed first.

Q 37: Do you agree that the principles set out in Fig. 7.3 are the right ones to use in determining eligibility for an exemption? Are there any additional principles which should apply?

Tie the thresholds for MTD reporting to VAT registration/ deregistration turnover thresholds.

Q 38: Which additional groups (if any) should be exempt from the requirements to maintain digital records and to update HMRC at least quarterly?

Any business with a turnover under the VAT registration threshold should be exempt from keeping digital records and quarterly updates.

If you have similar or different views on these questions please make a response directly to HMRC at: [email protected] or by completing the HMRC survey which covers the main questions from this consultation document.

You don’t have to answer all the MTD questions. A response to just one or two key issues is worthwhile. The consultation period ends at 11.45pm Monday 7th November. Every response counts.

Replies (11)

Please login or register to join the discussion.

avatar
By RFBS
03rd Nov 2016 13:25

I completely agree, the MTD threshold should run in line with the Vat threshold, £10,000 is far too low.

Incorporated Vat registered Companies are already used to quarterly reporting, for these businesses the proposed changes won't be quite as intimidating.

Many non incorporated, sole trader businesses (window cleaners, taxi driver, decorators, plumbers etc) are not computer literate and can't afford any employees that are. So many of these were schooled in an era way before PC's existed and they haven't caught up since, many still unable to use smart phones. Keeping accurate records manually on paper has always been sufficient, some still intimidated by a simple spreadsheet, it is unreasonable to expect them to be able to record their business transactions digitally.

Thanks (4)
avatar
By mfbrown185
04th Nov 2016 11:26

Totally agree with exemption threshold and the VAT registration ceiling being the MTD ceiling, makes total sense and is logical. Most small business's are aware of the VAT threshold.
A large number of "baby boomers" who run business's were not educated with computer assistance and struggle with even basic tasks.
We have clients who maintain perfectly adequate manual books and/or spreadsheets, equally we have clients who have accounting software and the accounts produced are very poor - HMRC need to allow small business to use the best tool for the job.
Read all of Rebecca's responses and agree will all.

Thanks (1)
avatar
By Kernowlive
04th Nov 2016 11:43

I agree, aligning the exemption limit with the VAT registration threshold makes a lot of sense.
Micro businesses have already suffered disproportionately from the introduction of RTI and auto enrolment. For a large employer the cost per employee of these measures is small, but the burden for a micro business with say just one employee is massive.
Putting them first in the queue for MTD makes no sense. Many lack the personal abilities, and technical knowledge to cope with these changes, and typically they will be the group least able to pay for expert assistance, or for that matter the penalties for non compliance
Setting the exemption limit at the VAT registration threshold would at least take this most vulnerable group out of the immediate firing line.

Thanks (1)
avatar
By Mr J Andrews
04th Nov 2016 14:51

All of Rebecca's comments are most sensible. Perhaps HMRC should have engaged her expertise at the outset rather than leave us all amazed at these costly , restricted, retrogressive aims.
Specifically HMRC define two particular groups { MTD 7.21 } exempted [ from online filing ] as :-
(a) those who satisfy the Commissioners that they are practising members of a religious society OR order whose beliefs are incompatible with the use of electronic communications and
(b) those for whom online filing is not reasonably practicable for reasons of disability, age , location remoteness OR ANY OTHER REASON.

At 67, I have a paranoid fear of hacking. I'm financially concerned my small business will fold owing to the additional time and costs imposed by MTD. Whilst not particularly religious , I consider myself a good soul who strongly believes in the evil of this particular method of electronic filing and also believe that singling out specific religious orders is tantamount to discrimination against atheists / non believers. Furthermore MTD removes my personal choice regarding correspondence as perceived under Article 8 [1] of the Human Rights Act.
Do I qualify ? Do I need a doctor's note ? Should I seek the appropriate denomination and attend for an hour every Sunday ? Much easier than the additional countless hours anticipated.

It's all very well HMRC allowing some new generation of fast track , high flying theorists to come up with these dumb Consultation Documents. For Christ's sake consider the practicalities. £1.3 billion .....what a joke. Perhaps under the Freedom of Information Act we can all see the analysis and in particular each participating Revenue officials' expenses claims.

Thanks (0)
avatar
By Mr J Andrews
04th Nov 2016 14:51

All of Rebecca's comments are most sensible. Perhaps HMRC should have engaged her expertise at the outset rather than leave us all amazed at these costly , restricted, retrogressive aims.
Specifically HMRC define two particular groups { MTD 7.21 } exempted [ from online filing ] as :-
(a) those who satisfy the Commissioners that they are practising members of a religious society OR order whose beliefs are incompatible with the use of electronic communications and
(b) those for whom online filing is not reasonably practicable for reasons of disability, age , location remoteness OR ANY OTHER REASON.

At 67, I have a paranoid fear of hacking. I'm financially concerned my small business will fold owing to the additional time and costs imposed by MTD. Whilst not particularly religious , I consider myself a good soul who strongly believes in the evil of this particular method of electronic filing and also believe that singling out specific religious orders is tantamount to discrimination against atheists / non believers. Furthermore MTD removes my personal choice regarding correspondence as perceived under Article 8 [1] of the Human Rights Act.
Do I qualify ? Do I need a doctor's note ? Should I seek the appropriate denomination and attend for an hour every Sunday ? Much easier than the additional countless hours anticipated.

It's all very well HMRC allowing some new generation of fast track , high flying theorists to come up with these dumb Consultation Documents. For Christ's sake consider the practicalities. £1.3 billion .....what a joke. Perhaps under the Freedom of Information Act we can all see the analysis and in particular each participating Revenue officials' expenses claims.

Thanks (0)
avatar
By Mr J Andrews
04th Nov 2016 14:51

All of Rebecca's comments are most sensible. Perhaps HMRC should have engaged her expertise at the outset rather than leave us all amazed at these costly , restricted, retrogressive aims.
Specifically HMRC define two particular groups { MTD 7.21 } exempted [ from online filing ] as :-
(a) those who satisfy the Commissioners that they are practising members of a religious society OR order whose beliefs are incompatible with the use of electronic communications and
(b) those for whom online filing is not reasonably practicable for reasons of disability, age , location remoteness OR ANY OTHER REASON.

At 67, I have a paranoid fear of hacking. I'm financially concerned my small business will fold owing to the additional time and costs imposed by MTD. Whilst not particularly religious , I consider myself a good soul who strongly believes in the evil of this particular method of electronic filing and also believe that singling out specific religious orders is tantamount to discrimination against atheists / non believers. Furthermore MTD removes my personal choice regarding correspondence as perceived under Article 8 [1] of the Human Rights Act.
Do I qualify ? Do I need a doctor's note ? Should I seek the appropriate denomination and attend for an hour every Sunday ? Much easier than the additional countless hours anticipated.

It's all very well HMRC allowing some new generation of fast track , high flying theorists to come up with these dumb Consultation Documents. For Christ's sake consider the practicalities. £1.3 billion .....what a joke. Perhaps under the Freedom of Information Act we can all see the analysis and in particular each participating Revenue officials' expenses claims.

Thanks (0)
Tornado
By Tornado
04th Nov 2016 18:42

I generally agree with Rebecca's comments which have led to me questioning the whole concept of digitalisation.

When we prepare a set of accounts in a known standard with a Profit & Loss Account and a Balance Sheet, it can generally be assumed that this is a complete set of accounts including all relevant information.

The whole purpose of MTD and Government Digitalisation is surely to farm information that the Government and the people can use but to be of practical use, surely that information needs to be accurate and complete.

If (quite rightly) there are exemptions and reporting limits, then the information that the Government Farms will be incomplete and anyone using that data will not be able to rely on it.

For example, the idea is that a personal Digital Tax Account will be pre-populated with much data but what about things like dividends from private companies, interest on loans to private companies and myriad other sources of income that will never be part of reporting to HMRC by the payers (quite legitimately) but will still be required to be declared by the receiver.

There is perhaps an aspiration to create a digital paradise where everything is hunky dory but that can NEVER happen, it is unattainable unless the people are ruled over with a rod of iron.

At best, MTD will be a hotchpotch of random information farmed from thousands of sources that will make no sense and there is clear evidence to many of us already that the HMRC computers are already filled with garbage.

What is missing from the MTD project is a realistic approach to its implementation and the results it will give. The Government need to ditch the idea that it will work perfectly and magically provide them with all the information it needs to Govern us, it will not, and they also need to remember that although the HMRC IT systems will be designed to be 'agile' the people are also pretty 'agile' and will always find ways to get around something if they think it is unreasonable.

One final comment .. although I can see and manage
my own taxes through my Agent Account, I did take the time today to set up my own Personal Tax Account (by time I mean a lot of time as there was some technical fault all morning). Two stage verification is a pain and I cannot see it is necessary as my bank does not require it.

I have not seen one of these accounts before, but expected to see personal taxation records. Well, I was offered the opportunity to manage my child tax credits, (the kids would be amused as they approach their late 30's), I could manage my tax credits (?) and I could ask for an estimate of my State Pension (a bit late for that). The one thing I wanted to see was my personal tax information but this was not to be seen or even mentioned.

I replied to the question 'Is there anything wrong with this page' to the effect that I was expecting income tax information so where is it, and submitted the enquiry only to be sent an email reply asking me what service I was trying to use?

I also noted that my office address was shown as my home address. This has probably been taken from my Tax Return, but I have searched for years to find where it says that the address on your Tax Return has to be your home address. Perhaps someone can set me straight on this. The implication is, of course, that the Personal Digital Tax Account will assume that the address on your Tax Return is your home address when HMRC must hold significant other information to show that it is not.

This is all getting so ridiculous that I can only now regard MTD as a Whitehall Comedy Farce to provide us with endless amusement. The only problem is that it is costing a darn sight more than a theatre seat.

Thanks (0)
avatar
By David Winch
04th Nov 2016 23:03

I agree with the VAT threshold idea but what's the general view on a company (or sole trader) operating below the VAT threshold that has nevertheless voluntarily registered for VAT?

Should they be able to continue making quarterly VAT returns yet be exempt from the rest of MTD?

I would hope the answer is "Yes" as well as having no pressure put on them to de-register from VAT.

David Winch
Sales and Marketing Consultant
Cambridge

Thanks (0)
Replying to Account Ant:
By Ruddles
07th Nov 2016 14:43

You are a conspiracy theorist.

Thanks (0)
Replying to Account Ant:
By Ruddles
07th Nov 2016 20:09

I doubt that very much. Although I suppose there is a first time for everything.

Thanks (0)
Replying to Account Ant:
Tornado
By Tornado
07th Nov 2016 20:18

You might be both.

I think there are flaws in the greedy obsession that the Government have for ever more information from us.

Not only will they eventually sink under a sea of so much data, they will be unable to distinguish between useful and rubbish data and the work will be so boring that nobody intelligent will want to work for HMRC any more.

The biggest and most serious potential flaw is (as highlighted by Tesco Bank today) even if the Government spend 2000 million pounds on cyber security (as announced), there will always be someone clever enough to break the system and gorge on our data regardless.

Thanks (0)