Tax experts have given a mixed response to the chancellor’s Budget announcement that the mandatory requirement to maintain digital records and submit quarterly updates will be deferred for certain businesses.
For businesses trading below the VAT registration threshold, the obligations will be deferred from April 2018 to April 2019.
This means that smaller businesses, many of whom maintain accounting records in hard copy or on spreadsheets, will have an additional year to familiarise themselves with the requirements of Making Tax Digital (MTD), obtain appropriate software and seek advice to ease the transition.
Adrian Rudd, chairman of the Chartered Institute of Taxation’s (CIOT) digitalisation and agent strategy group, said: “This announcement by the chancellor recognises the challenges which will be faced by the many small businesses who are not currently maintaining digital records or interacting with HMRC on a frequent basis. The software being developed for MTD is not yet ready, and indeed may not be fully available until late 2017. While testing of MTD software will take place on an increasing scale throughout 2017 and early 2018, it makes no sense for the government to require small businesses, which are likely to suffer the greatest proportionate impact, to be at the vanguard of MTD.”
The exemption from MTD for the self-employed and landlords also appears to have been confirmed at £10,000 per annum, in line with previous announcements.
The main timescales for mandation into MTD will therefore be:
• April 2018 – Unincorporated businesses with a turnover above the VAT registration threshold, for their Income Tax obligations2
• April 2019 – Unincorporated businesses with a turnover above £10,000 but below the VAT registration threshold for their Income Tax obligations, PLUS all businesses (unincorporated and incorporated) for their VAT obligations
• April 2020 – All incorporated businesses for their Corporation Tax obligations
Rudd said: “Notwithstanding this very welcome relaxation for small businesses, the timetable for MTD remains extremely challenging. The many complexities of tax still need to be translated into functioning software, and the diverse nature of businesses accommodated, not to mention how their agents can support them.
“We would encourage HMRC to step-up their engagement with professional bodies, agents, software companies and businesses themselves. Success of MTD will only come from real collaborative working with all stakeholders.”
The Association of Taxation Technicians (ATT) has said that while welcome, the delay to MTD for small businesses does not go far enough to allay its concerns about the rollout and implementation.
Yvette Nunn, co-chair of the ATT’s technical steering group, said: “While we welcome this modest concession, this small gesture is not enough to prevent the requirements under Making Tax Digital, such as digital record keeping and quarterly updates, from burdening entrepreneurs. The delay will allow a little more time for those businesses to find a digital solution, but it will still be overly burdensome for small businesses.”
The ATT called on HMRC to postpone the introduction of quarterly digital reporting by at least a year, in May 2016, to allow time for a proper consultation and development of the necessary digital solutions as well as time to allow those businesses to evaluate the solution best suited to them.
A survey of members of the ATT and the CIOT found that 89% of members believed the timeframe for implementing quarterly reporting should be extended to help businesses.
Yvette Nunn said: “We do not doubt that digital interfacing between taxpayers and HMRC is the way to go, but we have always said that those who are within the crosshairs of this process are sometimes those who are least able to deal with the changes, such as very small businesses.
“Postponing the digital mandation by one year for small businesses will provide a useful period of reflection and consolidation for HMRC and helpful breathing space for those who will have to deal with these new requirements.
“We are concerned that HMRC has yet to respond to requests to publish the detail of its costings of what the financial cost for small businesses will be; we worry that the cost and benefits of the system are not as HMRC claims.”
Similarly, Ricky Noimark, tax partner at MHA MacIntyre Hudson, emphasised that the deferral is only subject to a limited pool of businesses and there are still details to be decided. He said: “Although the chancellor Phillip Hammond announced a ‘delay’ in implementing MTD for organisations and businesses with turnovers under the VAT threshold, what he failed to announce was that for everyone else – it is full steam ahead.
“While the Budget has provided an update to MTD, there still has not been any detailed guidance on how to calculate profits reported in the digital reporting format, even though implementation is only just over a year away.
“Far from a delay for many of our SMEs, this is a stark reminder that MTD is fast approaching and is on course to hit them in 2018. There is still very little detail published on how this will work and all SMEs really need to seek advice to make sure business records are in a compliant digital format.”