MTD: Taxpayers must make six submissions to HMRC
Close reading of the draft Finance Bill 2017 has uncovered another annual submission which taxpayers will be required to send to HMRC.
What we were told
In March 2015, when George Osborne outlined the new concept of “making tax easier”, he said it would herald the death of the tax return. All the tax information relevant to an individual would be gathered into the taxpayer’s digital tax account, and the annual paper tax return would be consigned to history.
This was sold as reduction in the administrative burden for taxpayers, but by the end of 2015 we were told that Making Tax Digital (no longer easier) would involve sending HMRC four updates per year. Accountants started to grumble that this would mean effectively four tax returns per year instead of one.
I have now discovered that the tax return is not disappearing; it is merely changing its name, and that MTDfB will involve five additional submissions per year, not four.
The requirement to make periodic updates to HMRC is set out in a new schedule A1 to Taxes Management Act 1970 (TMA 1970), which is introduced by FB 2017, cl 121. The financial information required to be transmitted in those updates will be specified in regulations, and Sch A1 para 7(4) says:
“The regulations may not require financial information about the business to be provided more often than once every 3 months.”
Those regulations have not been published yet, but HMRC has made it clear that the maximum period an update can cover is three months. Although a taxpayer may submit more frequently updates if they wish, anything more than quarterly updates will not be required.
It is worth noting that a set of quarterly updates will be required for each trade or business undertaken by the taxpayer. Thus, a self-employed individual who also has some rental income will have to submit a set of quarterly updates for their self-employed trade, and another set of quarterly updates for their lettings business.
End of period statement
The updates are not required to include any accounting adjustments, as those adjustments are to be included (if necessary) in an “end of period statement”. This is the fifth submission to HMRC, which is required by TMA 1970, Sch A1, para 8.
This end of period statement (EoPS) is the point at which the taxpayer declares they have submitted complete and correct information regarding their trade. Regulations will define the timetable for providing the EoPS (TMA 1970 Sch A1 para 8(4)). HMRC has said this deadline will be set at the earlier time of 10 months after the accounting period end or the next 31 January.
Note that a separate EoPS will be required for each trade or business undertaken by the taxpayer.
In addition to submitting the end of period statement the taxpayer will be required to make a “final declaration”. This is the new name for the annual tax return (see new TMA 1970, s 8(7) - introduced by FB 2017, sch 25 para 3).
The final declaration is needed to report any income which has not been reported to HMRC through an EoPS, such as savings or employment income, and to make any necessary claims. The deadline for submitting the final declaration is set by TMA 1970, s 8(1HA) as on or before; 31 January in the year after the end of the tax year, or if later, the last day of the period of three months beginning with the date of a notice issued by HMRC.
Pete has a sole-trade business with a year end of 30 April, which has a turnover of £90,000 per year. He will start making quarterly reports under MTDfB from the accounting period that begins 1 May 2018. His quarterly updates must be submitted within one month of the end of each three-month period that starts on 1 May, and the other declarations and statements must be submitted as follows:
We are still waiting for sight of the regulations which will specify the deadlines for submitting updates, statements and declarations to HMRC. It is possible that those regulations will change the deadlines from those outlined above.
What is clear is that a self-employed taxpayer will have to interact with HMRC at least six times a year to submit or confirm the following:
- 4 updates (per trade)
- 1 End of Period statement (per trade)
- 1 Final Declaration.