Making Tax Digital - should you be concerned?
Making Tax Digital is a government plan to update HMRC with financial information four times a year instead of simply at the year end. This is set to affect about 1.6 million companies, 2.4 million self-employed and 900,000 residential landlords.
The government had wanted businesses to comply by April 2018. HMRC has relaxed the timetable for these proposals under considerable pressure from all over. So that’s a relief as the timing appeared very rushed. The new timetable will mean that businesses above the VAT threshold of £85,000 will need to keep digital records from 2019 but initially only for VAT purposes. Businesses will not need to keep digital records or update HMRC quarterly for other taxes until at least 2020. Businesses and landlords with a turnover below the VAT threshold will be able to choose when to move to the new digital system - the government said this will affect about 3.1 million businesses.
When eventually MTD is introduced the actual reporting should not be time-consuming, assuming the business is using software which will be adapted, otherwise this will impose a significant and costly extra requirement which will be especially noticed by micro-businesses. It also begs the question as to what information is going to be reported quarterly and what HMRC will do with this information. The quality and meaning of quarterly information for HMRC is to our mind a bit of a mystery at the moment. Currently the only profit information which is formally reported is at the year end which is usually after significant checking and adjustment by the external accountants. Will this mean that such attention is required quarterly or will it mean that such information is of limited use? Will it force businesses to use accounting software? Will HMRC have access to fully detailed accounting records rather than just the formal statutory accounts summary? Will it encourage more income to be declared or discovered or less costs to be claimed? Time will tell us what the consequences will be.