Making Tax Digital (MTD) was announced in the Autumn
Statement 2015 with two main thrusts - Business MTD and Personal MTD. The
idea has been generally well received and, if implementation goes according to
plan, will be a step towards transparency in the tax affairs of both
individuals and businesses, but commentators have also noted MTD is clearly
leading to an advance in the payment of tax which hitherto, in some cases, has been made well
after the end of the relevant tax year.
Despite the relatively short lead time to first
implementation in 2018/19, HMRC has been rather shy of sharing detailed information on this initiative
with the professional bodies and the general public.
So far, there has been some generalisations about the aims
for Personal MTD and only limited information on the Business MTD. HMRC have indicated that the initiative will
start with the quarterly digital reporting of income/expenditure by the
smallest businesses (including landlords) first, until eventually the largest
businesses in the land will be brought within the Business MTD by 2020. This seems a somewhat inverted approach since
it is likely that smaller business owners will require much more education (or
even the purchase of a computer!) in order to be "up to speed" by
2018/19, whereas larger businesses are much more likely to be capable, already, of
the quarterly digital reporting because of more sophisticated internal
accounting systems and staff expertise.
HMRC's perception is that poor record keeping by smaller
businesses has led to a loss of tax to the Exchequer but no evidence has been
presented by HMRC in support of this. In
fact, in most accountants' experience, poor record keeping is more likely to
lead to understated expenditure, which leads to more, rather than less, of the income
being taxed! Small businesses will, undoubtedly, need more professional help and one of the main concerns of
MTD centres around the additional reporting burden this quarterly digital
account will bring for small businesses and landlords. The ubiquitous "cash" book and annual accounting will be
a thing of the past!
Of course, no new HMRC initiative requiring
"participation" by the taxpayer, arrives without sanctions and
penalties for failure to comply! The
formal consultation on these will be later this year.
For those interested, the Government's MTD document,
including the timeline for implementation, can be found at:
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/484668/making-tax-digital.pdf