At the Autumn Statement HMRC and the Government were keen to highlight the fact that they had received over 3,000 responses to the six consultation documents issued on Making Tax Digital and that HMRC would respond in January 2017.
Well, HMRC just about managed to issue their response within that timescale but at lunchtime on 31 January, which just about sums up their view of the profession. After much research into the responses HMRC found one person who was vaguely positive about the changes (a joke!).
In all seriousness, HMRC's publications on the 31st make you wonder what the point of consultations is if are not going to listen to the responses. In my mind there are two major issues:
- quarterly reporting of information; and
- compulsory digital record-keeping.
All the other suggestions, such as the extension of cash basis, are peripheral.
Despite what HMRC keep saying, this will create massive amounts of extra work for businesses. HMRC say that they will proceed with the requirement for most businesses to file information quarterly, although HMRC have never said why this is necessary. It initially appeared that this was to support quarterly in-year payments on account but, in a press release last year, HMRC stated that they would not be proceeding with in-year payments on account. Therefore, the raison d'etre for quarterly information has disappeared. The quarterly information will not be on an accruals basis and there appears to be no requirement that it is actually accurate, so will someone please tell me what the point is??
Compulsory digital record-keeping
HMRC's reasoning for compulsory digital record-keeping is that the biggest single tax loss in the SME marketplace is bad record-keeping, so apparently more regular record-keeping will make things better (ever heard of rubbish in, rubbish out?). HMRC provide no evidence to support their hypothesis but, assuming it is true, I could kind of accept compulsory digital record-keeping phased in over the next four or five years. However, HMRC are insistent that it will start in 2018. And there will be free software, although it now appears that HMRC accept that the free software will only be appropriate to smaller businesses.
What the real driver for these changes is is not clear but it is about time that HMRC took a deep breath and came back to the real world for a moment. In addition, maybe it is about time that the professional Institutes made clear to HMRC that they will recommend mass non-compliance to their members, just in order to make HMRC see sense.
Of course, it is not a done deal yet. We will, of course, keep you fully informed of developments and the support which we can offer you.
How can Mercia help?
Do you have clients who may be affected by these changes or who would be interested to hear about the latest in Making Tax Digital ? To keep clients up-to-date on all the changes, Mercia have produced for new client letters - one each for the self-employed, partners and partnerships, and landlords.
- Making Tax Digital for Business (MTDfB) - What does it mean if you are self-employed or have a property business?
- Making Tax Digital and the introduction of the cash basis for landlords
To order our client letters, visit our website.