This is the first in a series 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
Please add your comments below, particularly if you disagree with me. I will be making a formal response to HMRC on behalf of the AccountingWeb community, so I need to read the full range of your views.
I urge you to make a response, if only to one or two of the consultation questions, as every response is counted equally. If you don’t speak up you won’t be heard.
Q 1: What are the challenges for businesses that currently keep their records on paper or simple spreadsheets in moving to an integrated software package for record keeping, and what further measures or support would help businesses to meet these challenges?
Businesses who keep accurate business records in paper form or on spreadsheets should not be required to change the method in which those records are kept. If the current recording keeping method produces an accurate result, there is no justification for changing that method. If the taxpayer currently records each transaction in near real time on a spreadsheet, - why make a forced change to that recordkeeping?
Any forced change carries the risk that errors will be introduced into the business records, as the taxpayer may not understand how the software works. If the software is more difficult to operate than the current method of record keeping (paper or spreadsheet) the taxpayer will be less inclined to use it as frequently and omissions will occur.
Q 2: What information and guidance would you find helpful in choosing the appropriate software for your business?
Every business is different so will need different things from its accounting software. For some complex businesses, such as partnerships, or those which undertake many international transactions, no standard software package may fit the needs of the business, and bespoke accounting software will be required.
HMRC should undertake research into how many businesses, including partnerships and companies, currently use bespoke accounting software.
HMRC should not try to explain the merits of different software packages. It should only publish a list of approved software packages, with the contact details of the provider.
Q 3: What types of business should a free software product cater for? What functionality would be necessary in a free software product?
Free software should not be provided. HMRC should instead permit those businesses who are eligible to complete the three line accounts on the SA tax return to submit those three figures in an online form. This gives the simplest unincorporated businesses a means to comply with its tax obligations with minimal costs.
Q 4: What level of financial support might it be reasonable for the government to provide towards investing in new IT, software or training, to whom should such support be aimed, and what is the most appropriate form for delivering such support?
See solution suggested in answer to Q 3. If that approach was adopted no financial support should be needed for the small businesses that use the online form submission method. Larger businesses should not need financial support.
However, free training in how to keep accounting records should be provided to any business which wants it. Software providers and accountants should be paid by HMRC to provide technical training to their customers, either face to face or by live webinar. Perhaps registered taxpayers could claim a voucher to redeem with a qualified provider.
Q 5: What other forms of support would help to make the transition to Making Tax Digital easier?
The two MTD requirements; recording transactions digitally, and reporting taxable profits digitally, should be separated. Businesses should be permitted to continue to record transactions in a fashion that suits the business, but they should report taxable profits to HMRC in a way to minimise cost to HMRC. See answer to Q3.
Transition to MTD should be voluntary, not compulsory. If a business will benefit by using accounting software it will make the change.
Q 6: What facilities would make it easier and more secure for businesses to enrol for Making Tax Digital and use software regularly?
Businesses must be able to delegate all or part of the MTD reporting to their tax agent.