MTD: Pilots, partnerships and announcement plans
At a face-to-face meeting with AccountingWEB, Making Tax Digital director Theresa Middleton sketched out more details around the government’s tax revolution – but as has often been the case with this most complex of projects, the get-together raised as many questions as it answered.
While the ‘complex businesses’ consultation document has yet to be published, HMRC were willing to share a little more information on how they will approach the thorny issue of partnerships.
According to Middleton, one of the simplifications that comes with MTD is that a partnership will do the updating, so the quarterly updates will not require an amount to be allocated to each partner.
“Updates are not about profits and not about distribution. At the end of year, [when the final report is submitted], the partnership will know what its profits are, and can decide how much each partner will get.”
- If the partnership profit is not divided between the partners at each quarterly update, the partner’s tax position can’t be “updated” in their personal digital tax each quarter, so there is no reflection of the income back to the taxpayer. In that case what is the point of the quarterly update?
Free software eligibility
One of the key concerns expressed about the MTD project has been around the cost of implementation to the smallest businesses. To alleviate this, the government has guaranteed that there will be free software in place for organisations with the ‘simplest of structures’.
Current HMRC thinking is that to be eligible for free software businesses must be:
- below the VAT threshold;
- on the cash basis ( including for rental income);
- and not employing anybody.
One question that remains unanswered is whether free software would be available to taxpayers with more than one source of income, such as rental income and a trading business. This is a point of concern for diversified businesses such as farmers.
Middleton told AccountingWEB that HMRC was not ruling out anyone with multiple sources of income at this stage, but would be clarifying this in the coming weeks.
- Will free software be available to taxpayers with more than one source of income?
- Will the free MTD software provided include facilities for taxpayers to authorise their agents to access their online data?
The threshold for businesses to exempt themselves from MTD has now been set at an annual turnover of £10,000, but during the Budget speech the Chancellor announced a 12-month delay for the next tier unincorporated businesses.
“Only those businesses, self-employed people and landlords with turnovers in excess of the VAT threshold with profits chargeable to Income Tax and that pay Class 4 NICs will be required to start using the new digital service from April 2018,” the tax department said.
For those new businesses with no previous turnover history to go on, HMRC’s recommendation is that if the business expects to go over the turnover exemption threshold then it makes sense to join Making Tax Digital when it starts to trade to avoid the transition later on.
“On the other hand”, said Middleton, “if a business is not sure, our plan isn’t to penalise anyone who records a higher turnover in the first year than they thought they would.”
With the start of the MTD pilot programme fast approaching in April, there is a growing clamour for information surrounding the nuts and bolts of the scheme.
Middleton confirmed that those already on HMRC’s books as a known taxpayer won’t have to go through the process of identifying and registering. They will instead ‘subscribe’ to MTD via their Digital Tax Account, and will be automatically enrolled.
The taxpayer will then be directed to GOV.UK, where they will be able to see what type of software is available – free, low-cost or ‘all bells and whistles’.
Once the taxpayer has chosen software, with the help of their agent if applicable, they need to register this with HMRC.
“We have to know that software is registered with our system so that we can recognise it so that software can exchange data with us securely and authentically”, said Middleton.
As covered in depth by AccountingWEB’s global editor John Stokdyk, taxpayers who join the Making Tax Digital pilot scheme starting in April won’t have to send HMRC a self-assessment return for 2017-18.
Recognising that partaking in the pilot then having to complete a separate SA return would be the “worst of all worlds”, Middleton said the plan was to let users send in details of other income through their personal digital account.
In a written clarification for AccountingWEB, HMRC explained: “It is not a question of opting out of the self assessment system. By subscribing to the pilot, and then complying with the conditions (sending in summary updates, End of Year activity, and where appropriate all other tax information) there will be, for the relevant year, no requirement to subsequently submit a self-assessment return because the taxpayer will have already met their statutory obligations.”
- Agent access to the pilot scheme may not be available until sometime after the project has started. How will agents ensure the accuracy and completeness of the information provided if they cannot access it?