HMRC has published its six long awaited Making Tax Digital (MTD)
consultation documents, setting out its proposals and options for
comment until 7 November 2016.
This note summarises the key proposals, under which most
businesses and landlords will have new requirements for record
keeping and reporting to HMRC as well as compliance powers, new
penalties, other administrative changes and updated accounting
requirements. Despite the delay, some taxpayers are still expected
to report from 2018.
Who is likely to be affected?
Unincorporated businesses and
landlords with gross income in excess of £10,000pa.
Partnerships, including LLPs.
Who is unlikely to be affected?
The largest companies, although the
threshold, being consulted on, is to be decide.
Phased in start dates
A basic pilot system is due to start in 2017, with expected
compulsory start dates of:
Income tax & NIC
– larger businesses and landlords
Income tax & NIC
– smaller businesses > £10k turnover; VAT
We will aim to update clients on further details as they emerge
and as our own plans on assisting clients develop.
Regardless of whether an agent is used, businesses and landlords
will be required to maintain accounting records in a recognised
digital format, using a software package compatible with HMRC's
systems. Digital reporting can be sent direct from the
Digital reporting – in year and end of year
Business and landlords will have to report online quarterly,
with an end of year (EOY) declaration to HMRC from the software.
The reporting deadline is unclear but likely to be a month after
the quarter end. Agents will be able to file on behalf of
The content of reports will vary between taxpayers, depending on
their digital requirements. Small businesses in the voluntary cash
basis, which is now expected to be extended to businesses with
turnover above the VAT threshold, will report cash transactions for
the quarter. Unincorporated landlords may be able to opt for the
cash basis. Other businesses and trusts are expected to report on
an accruals basis.
Penalties and other tax administration
HMRC will be able to enquire into an EOY declaration, have
information powers to check a tax position, discovery powers and
only send prompts or nudge messages about in-year submissions.
Penalties, notified online, for any late submissions or tax will
work in a similar way to the motoring points system and eventually
replace the VAT default surcharge system. There is no change to
error penalties or mandatory payment dates, although a voluntary
pay as you go system has been proposed. HMRC says penalties will
not be charged until taxpayers have been in the new system for
Tax gap - HMRC says
their research indicates that many small businesses do not keep
contemporaneous records, leading to £6bn+ error. HMRC thinks
real time recording and reporting will reduce this and more than
pay for the £1.3bn cost.
Reduced burdens - In
addition, HMRC thinks reporting quarterly will be less burdensome
for HMRC and for business than their agent doing it annually.
HMRC accepts that additional reporting may not reduce burdens for
larger business nor close the tax gap, but will involve them so as
to be seen to be fair.
Impact for tax agents? The digital platform
will attach to digital tax accounts (DTA) that are have been rolled
out for taxpayers. Agent access through the new Agent Online Self
Serve (AOSS) system is expected in 2017. S&W is heavily
involved with the consultation through our software suppliers, our
professional bodies and direct contact with HMRC.
Under current law, where a business subject to corporation tax or income tax reallocates an existing asset into its trading stock, the basic rule is that there is a deemed market value disposal of the asset...
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