November 10th, 2016 / Insight posted in Articles

Making Tax Digital – Kingston Smith Responds to Consultation

The Government published six consultation documents on various aspects of their Making Tax Digital (MTD) strategy in August. The consultation period closed on 7 November, and the Government will now be finalising it proposals.

The most revolutionary proposal related to the requirement for businesses to maintain digital records, and to provide data to HMRC on a quarterly basis. The plan was for most unincorporated businesses (including trading and property businesses) to come within this regime from April 2018, with companies falling in from April 2020.

The quarterly information submitted by businesses was to feed into individual taxpayers’ digital tax accounts, which would also be populated with other information, such as details of salary, benefits, and bank interest.

HMRC has also proposed changes to the way in which unincorporated businesses can calculate their taxable profits (which are intended to provide simplification), an ability to make tax payments to HMRC on a “voluntary pay as you go” basis, and changes to the penalty regime.

All in all, HMRC believe the proposals will help businesses better plan for their tax liabilities, reduce error, and see a reduction in the administrative burden of dealing with HMRC (the “end of the tax return”).

Kingston Smith has responded to the consultation documents. We are broadly supportive of the Government’s stated aims, but we have a number of serious concerns about the way the Government is currently planning to meet these. Specifically, we have made the following recommendations:

  • The filing of data on a quarterly basis should be optional, such that businesses can do this only if they can see clear benefits of doing so;
  • If quarterly reporting is compulsory, the turnover threshold under which businesses are exempt should be increased substantially from the £10,000 that is currently proposed;
  • It should be as simple and straightforward as possible for businesses to comply with any quarterly requirements that are imposed;
  • The introduction of quarterly reporting should be delayed until at least April 2019 to allow businesses to prepare for these changes;
  • Taxpayers should have maximum control over amounts paid voluntarily to HMRC, for example so they can allocate these against specific liabilities, or to get them repaid on demand;
  • Taxpayers should retain full control over their tax submissions, with a full right to dispute figures in their digital tax account which have been received by HMRC from third parties, or estimated by HMRC.

In addition, we have made a number of recommendations to help ensure that any changes to the penalty regime are fair and proportionate, and that any changes made to the way in which unincorporated businesses calculate their taxable profits represent genuine simplifications.

We are expecting the Government to respond to the submissions it has received later this month, and we will provide more information as to the approach they are taking as it is available.