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Draft MTD response: Quarterly updates
This is the fourth 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.
Do you agree with my answers? 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 20: Do you have views on how detailed the summary data in the updates should be, and whether the level of summary data should be different depending on the size of the business?
Businesses with turnover under the VAT registration limit and who are not VAT registered should be able to report only total income and total expenses (three line accounts) with the option of reporting this more frequently during the year, but that should not be compulsory. These businesses should not be required to use accounting software.
Q 21: Do you have any comments on the categorisation of summary data in the updates?
Where a business is on the VAT flat rate scheme it does not have to categorise its purchases for VAT, or list them at all. MTD will increase the amount of administration a small business on the VAT flat rate scheme will have to do. MTD quarterly returns undermine completely the administration savings which the VAT flat rate scheme was designed to deliver.
Q 22: Do you have any views on what VAT data the updates should contain?
Do you have any views on the advantages or disadvantages of including VAT scheme data in the updates? If so, which schemes and which data should be included in the updates?
A separate consultation should be undertaken to consider the how the reporting requirement of VAT registered companies can fit with MTD reporting requirements. MTD needs to be designed to suit all sorts of businesses not just small unincorporated businesses.
MTD should not have one set of requirements for VAT registered unincorporated businesses and another different set of requirements for VAT registered companies. The requirements for all VAT registered businesses, be they corporate groups, single companies, or partnerships should be considered together.
Q 23: What flexibility around update cycles would be useful?
If MTD does not apply to businesses which are not VAT registered the flexibility is not needed, as quarter updating will not be compulsory.
The need for quarterly updates has not been demonstrated.
Q 24: Do you agree businesses should be allowed one month to submit their update? Would any problems be caused for VAT registered businesses by standardising the time limit for updates for all taxes?
The deadline to submit quarter update must align with the VAT return submission deadline: 1 month + 7 days after the end of the quarter. Do not change the VAT submission date. There is no good reason for changing it, and a separation from the VAT payment date will only cause confusion.
Q 25: What method of deriving a business’s start date for providing updates under Making Tax Digital would be most straightforward for businesses?
The start date for MTD compliance should be the date the business registers for VAT and the MTD quarters should align with its VAT quarters.
Q 26: Do you wish to make any comments about the operation of ‘in-year’ amendments to updates for the purposes of profits taxes or VAT?
Amendments should only be made by the taxpayer or his tax agent.
Q 27: Do you agree that the process of finalising the regular updates should be separate to the regular updates?
Yes. This is essential to allow the taxpayer’s accountant to review the accounts before they are submitted.
Q 28: Do you agree that businesses should have nine months to complete any End of Year activity?
At least nine months should be permitted to make the final report for the year, which will amount to the tax return for the business.
The full cycle of quarterly updates and the final report must be piloted with a wide range of businesses before any compulsion of MTD is introduced. Note that a full cycle of updates and end of year report will take 21 months to complete. A period of up to six months should be allowed to analyse the results from the pilot and learn lessons to tweak the design of MTD. Taking this resting period into account MTD should not become compulsory for any business until accounting periods ending in 2019/20.
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 on Monday 7th November. Shout and be heard!