Save content
Have you found this content useful? Use the button above to save it to your profile.
time-bomb
GoodLifeStudio

Making tax digital: The known unknowns

by
9th Feb 2016
Save content
Have you found this content useful? Use the button above to save it to your profile.

Rebecca Cave attended a Making Tax Digital event hosted by HMRC, and reports on what was discussed. 

The move towards quarterly reporting has started, but there will be many known and unknown issues to be resolved along the way. A major unknown is whether quarterly tax payments will follow on from quarterly reporting. This matter has not been decided either way by government ministers, or so we were told by HMRC.

The purpose of these early Making Tax Digital events appears to be to educate advisers about quarterly reporting, and to test reactions to the idea of quarterly payments. It was emphasised that quarterly reporting is not about securing a cash flow advantage for the government [much laughter from the audience]. The purpose of quarterly reporting is to modernise the tax administration system and to encourage taxpayers to interact with HMRC on a more current basis.    

A further more formal consultation on Making Tax Digital will follow from April 2016 onwards, which will consist of series of events held around the country. HMRC wants to reach out to smaller businesses and their advisers in those events.     

Who will report?

All businesses will be required to report at least quarterly to HMRC, this is not up for negotiation. Individuals with secondary sources of income (non-PAYE) of £10,000 or more will also be within scope of quarterly reporting. When questioned on how this £10,000 was arrived at, the answer appeared to be “taxable income”. So a landlord with rental income of £1,000 per month gross, and interest payments of £500, will be brought into quarterly reporting as the interest will not be tax deductible, as the their taxable secondary income will be £12,000 per year from 2020.  

When will it start?

The timetable for bringing taxpayers into quarterly reporting is expected to be:

For accounting periods or tax years starting after:

Type of business:

5 April 2018

Businesses under VAT registration threshold and individuals with secondary income of more than £10,000

5 April 2019

VAT registered businesses

1 April 2020

Companies

This approach; starting with the smallest and least sophisticated businesses, was challenged by the accountants present as being the wrong way round. HMRC was urged to start quarterly reporting for businesses which have the greatest capability to cope i.e. large companies with in-house tax departments.

What will be reported?

What type of data will be reported quarterly: A summary of receipts and payments or the detail of every single business transaction? – HMRC doesn’t know; as no decision has been made. This response calls into question how HMRC can be negotiating with software providers (see below) as this fundamental point has not been decided.

HMRC believes that businesses won’t have to hire tax professional to do quarterly updates. This implies that all business data items will be submitted (every invoice issued and receipt for expenses), with no analysis of whether the items submitted are tax deductible or not. The HMRC mantra is: “reporting to HMRC closer to real time will reduce errors”. Exactly how more frequent reporting will reduce errors was not demonstrated.

Tax agents’ involvement  

Every business will have access to an HMRC digital tax account from April 2016. Tax agents will be able to manage their clients’ digital accounts. Work to give tax agents access to those accounts is being synchronised with Agent Online Self-Serve (AOSS).

At present AOSS is being piloted with tax agents who have no more than 200 clients. HMRC could not say when AOSS will be available to all tax agents, as currently that programme appears to be running behind its predicted schedule.

It was not clear when tax agents will be given access to clients’ digital tax accounts, or even that all tax agents would be given access from the same date. The accountants asked for access to clients’ digital tax accounts from April 2017, when the first businesses are expected to start trailing quarterly reporting.

Software

HMRC is consulting with commercial software providers to provide free software for smaller businesses and for those with less complex tax affairs. There is no definition of “smaller” or “less complex” in this context as yet.

The HMRC vision is that the software will flag-up data items which are potentially wrong and HMRC will send a personalised message to taxpayer as guidance.

Ona accountant asked: What research has HMRC had done as to the types of software already used to record business transactions? It was emphasised that many businesses used spreadsheets, or bespoke software, as there is no commercial software available for their particular form of business, e.g. financial advisers.  

Penalties

Will penalties be imposed for late quarterly reporting or for inaccurate reports, or both?

HMRC doesn’t know the answer to this, other than; “there will be a light touch approach.”  

VAT

Will the flat rate scheme for small businesses be abolished, and if not, how will it tie into quarterly reporting? – No decision has been made on this.

CIS repayments

The consultation paper on simpler payments  promised that tax repayments would be obtained quicker. This implied that off-sets of tax owning and tax deducted such as CIS tax would be made. As CIS repayments are currently delayed for months due to security issues, how are those issues going to be over-come? HMRC had no answer on this.

Conclusion

HMRC acknowledged that Making Tax Digital will be as fundamental an alteration to tax administration as the change to self assessment. For those of us who worked through the move to SA, which also involved a change from the prior year basis to current year basis for the self-employed, the move to digital tax accounts and quarterly reporting appears to be indecently rushed.

If you have comments about the Making Tax Digital programme you can send them to HMRC on this address: [email protected].

Replies (63)

Please login or register to join the discussion.

Replying to Paul Crowley:
By taxbakbristol
11th Feb 2016 02:32

Starbucks, Google & Amazon

The benefits of this totally ill conceived idea will be that they get a few bob more from George the Window Cleaner but with it a lot of garbage that they will have to take time out to sort - HMRC that is!

Meanwhile the BIG 3 above will probably never have to comply at all as by the time its their turn HMRC wlll have disbanded it as unworkable and lost more millions by not getting the Fearsome 3 in on it first.

Maybe George O will do a deal with them........giss us a couple of quid Gov and we will call it quits!

As I sad before PIE in the DIGITAL SKY!

Thanks (0)
avatar
By KateR
10th Feb 2016 19:28

If your accounting year does not end on 5th April....

How will the transition to quarterly reporting work for a small business that hitherto has run its accounts to say 30th June. If this system is implemented from 6th April 2018 then the last actual tax return will be for 2017/18. The small business will have included accounts for year ended 30th June 2017 on this return. So what happens to income/expenses between 1st July 2017 and 5th April 2018? 

Thanks (0)
avatar
By DCaine
10th Feb 2016 19:56

Yet another thing

on top of auto-enrolment and FRS102/105 etc!!  Makes you want to hang up your calculator!

As many others have said already, surely HMRC will have to invest a huge amount of money in new software and extra staff, so they will need plenty of cash to do that.  I am sure it has been muted before that they wanted to bring smaller companies into the payments on account regime, so why not make everyone else pay quarterly too?  There will still surely need to be an end of year 'reckoning up' for individuals, because allowances etc all work on an annual ficsal basis, so they will just be quadrupling their own work and ours.  And no HMRC, we are not customers.  If I was a customer I could chose to pay tax in Sweden or a different country with a cheaper tariff! We are taxpayers and it will be our taxes that pay for this latest crazy scheme!

Thanks (0)
avatar
By North East Accountant
11th Feb 2016 16:48

Why?

Looking at the idiotic HMRC case studies one thought springs to mind.

Why?

Be honest HMRC what is the real reason for this nonsense.

If it's money in faster quarterly or even monthly payments on account would suffice.

If it's you want all self employed/company directors on PAYE just say so and say from 06/04/18 all must go on monthly RTI for all earnings for labour (to be defined). Only dividends for ROI. Of course this will destroy the entire UK self employed/small company market but hey ho.

If it's you want more data roll out iXBRL for all self employed/partnership/LLP Accounts.

If it's something else be upfront and properly engage the interested parties.

Before you set out on a journey it helps to know where you are going and why? At the minute either HMRC have no glue what so ever or are not being honest.

If Geeta, Richard, Helen, Dave (case study examples) want to know where they are on  a quarterly or even daily basis then can easily achieve this now (do themselves or appoint an accountant) without the entire SA population of 10 million people having to deal with this madness.

Come on HMRC be honest, Why?

 

 

Thanks (2)
avatar
By johnjenkins
11th Feb 2016 10:38

Unfortunately it makes

HMRC and Government look even more pathetic than we think they are (no I know we're not perfect). You can't have a consultation with a body that has already decided what they are going to do without a clue of how to do it. You go to a dentist for a consultation. There is a problem let's discuss options. No good saying I will pull all your teeth out then we will decide how we are going to pull them out.

So GO and DG and whover else. You have aproblem. The problem is you are short of money to waste on crap. So Accounting world how can we solve this problem. We could have the self-employed and business pay their tax more or else on an ongoing basis. Then you have the consultaion to discuss how best to achieve that end. That way GO and co you will get a system, that although might not be too popular, that will work.

Just an afterthought. I don't charge for consultations.

Thanks (0)
avatar
By David Gordon FCCA
11th Feb 2016 12:22

lies, damned lies, and HMRC statistics.

 This nonsense is based on constructive dishonesty from HMRC.

 Last week it was reported in the Times that an HMRC spokesperson had claimed that 89% of taxpayers had filed their ITRs on time.

Q.E.D 89% of taxpayers were able to handle the HMRC IT system. In which case the new suggested sytem was reasonable. This is constructive dishonesty on the part of HMRC. The facts are simple:

A real example:

Two sole practitioners with the help of three unqualifed staff, filed between them 669 ITRs.

 Those 669 taxpayers knew no more about filing tax information than they know about filing elephants' toenails. In the real world HMRC relied on two qualfied accountants (with some expensive software) for 669 ITRs.

 It does not take a genius in statistics to thereby estimate that anything between two and four million ITRs were in fact submitted by perhaps 40,000 agents. So, that this 89%  claim is horse feathers. In fact HMRC are able, if HMRC were being ethically honest, to publish just how many taxpayers have appointed an agent. HMRC will not publish that figure. Simply because it would give the lie to their claim that the current system is well understood by taxpayers. 

Further there are two basic types of taxpayer. 1) Passive 2) Active.

A passive taxpayer is one whose income is all taxed at source on certificates, P60, bank interest, some dividends. So that the ITR really does not not require any skill other than the ability to fill in a form (Not as widespread as HMRC holds out!).

An active taxpayer is one whose ITR really does require some calculation and thought. HMRC is able to supply these numbers, but will not so do. This because the information would demonstrate that the majority of self-filed returns are passive taxpayers. Meaning they do not require any knowledge of the system to file a return.

 The disturbing and sad fact is, HMRC are either into a major exercise in self-deception, or are lying into their back teeth, with their claim that 89% of taxpayers were able to file their returns.

Using this dishonesty to push through a system that nobody but IT geeks wish for.

ICAEW & ACCA etc are unfortunately too busy pursuing "Constructive" relationships with HMRC, instead of representing their members' and taxpayers' interests.

 

 

 

 

 

 

Thanks (6)
Head of woman
By Rebecca Cave
11th Feb 2016 14:20

Update on quarterly reporting from ICAEW Tax Faculty

The Tax Faculty has posted its summary of what it knows about  making tax digitial (MTD) and quarterly reporting:

http://www.ion.icaew.com/TaxFaculty/post/The-move-to-digital-and-mandating-quarterly-returns

They have received different information from HMRC than was given at the MTD briefing on 5 Feb, which I reported on above. In particular there is a difference of understanding  about what data would be transmitted quarterly to HMRC:

"We are reassured that the making Tax Digital (MTD) policy will not amount to quarterly tax returns as we know them now, but will involve submitting income/expenditure information in summary ‘at least’ quarterly. As yet, we have no details of what these submissions might look like or contain, but they will be summaries rather than transactional."

The ICAEW Tax Faculty also has a long list of concerns about MTD.

Thanks (1)
avatar
By Sheila Morrison
11th Feb 2016 14:27

Digital tax

I'm retiring. No question

 

Thanks (1)
avatar
By johnjenkins
11th Feb 2016 15:20

mammaries

transextional. What's the difference. Information sent quarterly amounts to a quarterly return (but not in the way we know it Jim).

Too right they should have concerns. In fact all our bodies should (in the words of OGA) stick it up GO's [***].

Thanks (0)
Locutus of Borg
By Locutus
12th Feb 2016 10:41

I have yet to find an accountant in general practice
... Who thinks this is a good idea or will even work.

The search continues.

Thanks (1)
Morph
By kevinringer
17th Feb 2016 14:27

Why do they call it "Making Tax Digital"?

I already submit 100% of my SA and CT returns digitally, and CIS, VAT and RTI. So as far as I'm concerned I've already made tax digital. Does that mean I'm exempt from further changes?

Thanks (0)
avatar
By steve 12321
13th Mar 2016 15:22

Just say no
How about from 17-18 all tax returns are submitted by recorded delivery on say 25-1-19
They are all paper returns
We refuse to pay the fines for filing late returns
We do not pay any tax until 31.1.19
We say no to this and get all clients to say no.
Get the institutes to say no.
I don't like being bullied and the proposal, in so far as we know it involved more frequent reporting simply is wrong and unworkable. It's a Liberty. So do we start a no campaign?

Thanks (1)
avatar
By agj3
08th Apr 2016 11:13

As far as I am aware our tax authorities have not been advised by anyone with more than 5 brain cells to come up with the idea of quarterly reporting. We should stop this in its tracks, and support our clients by polling them to see what they think. If they (as I suspect) virtually all disagree with a) the concept, b) the practicalities, and c) the timescale, we should all, taxpayers and accountancy bodies, be resisting this as much as possible, not just meekly accepting it. If all affected parties signified their intention not to co-operate in future, and to cease to have a "working relationship" with HM R & C, then they would be forced to change tack. This needs to be done now though not later, when this madness may have had a chance to progress further. Otherwise, it will only be a matter of time before each taxpayer is compelled to employ and pay their own HMR & C staff member (whatever the size of business), who will supervise the day to day business of their allocated taxpayer by looking over their shoulders 24 hours a day, and operating their business bank account as set up and controlled by the Treasury. 

Thank goodness I will be retiring soon ! (However, I suspect I will be spending much of the next 2 years transferring clients to other accountants, or attempting to plan for an unwanted new way of wasting taxpayers time and money). So much for cutting red tape. Seems OK to do what you like if you are a large company or rich (usually both), but Bob the sub-contract builder look out - HMR &C are coming to get you.

[email protected]

Thanks (1)

Pages