BREAKING: Making Tax Digital reporting to start in April 2018

HMRC’s Making Tax Digital reporting plans are to go ahead as planned with an April 2018 launch for quarterly updating and reporting for sole traders and buy-to-let landlords, with a major pilot starting this April although the exemption threshold remain up for review, reports Sara White

In a compromise to the original plans, the government has agreed to review the proposed £10,000 exemption threshold and the deferral threshold, both of which will be confirmed before the new rules on Making Tax Digital are laid in the Finance Bill this July.

The decision to push ahead with the existing Making Tax Digital timetable has been taken due to overwhelming support for the digitisation of tax in the majority of the 3,000 responses to the HMRC consultations issued last summer.

However, there have been some major concessions on the original plans with HMRC agreeing to allow the continued use of spreadsheets, although these may have to go through a third-party software tool before being downloaded in to the HMRC IT system.

There will also be a soft landing penalty regime in the first 12 months of operation with HMRC stating that the penalties will not be enforced during the initial launch period although this will go out for consultation this spring.

A major trial period will start this April with 300 affected taxpayers already signed up to test the MTD reporting system.

Landlords will be able to use the cash basis for the first time if they are reporting annual income under £150,000.

The cost to sole traders and buy-to-let landlords who are entering the first tranche of quarterly reporting, is estimated at £280, according to the government’s impact assessment. This will include software and training costs.

A final decision on the exemption threshold is also still under review, while the final consultation on the Making Tax Digital rules for complex, incorporated businesses is due to be published in spring 2017.

Theresa Middleton, HMRC director of Business Customer and Strategy told CCH Daily: ‘We have not included the exemption threshold and deferral threshold as the government has decided that it needs more time to consider these issues, but they will be confirmed before July 2017 when the legislation is laid.

‘These reforms are more important than ever as the errors by taxpayers have gone up to £8bn. We received broad support for the direction of travel [in Making Tax Digital], although there was concern about the pace, costs to business and capability of the smallest businesses to make changes.

‘Businesses will be able to continue to use spreadsheets for record keeping but must keep to HMRC requirements, but they might need to combine the spreadsheets with some other software to clean the data.’

Three line accounts will be supported for those sole traders who only want to report income, expenses and profit and loss.

An estimated five million businesses will be affected by the new reporting requirements.

Testing period

A year-long testing period will start this April, with software developers expected to work closely with HMRC to ensure that quarterly reporting software is available to trial by a wide range of taxpayers.

Middleton said: ‘We are thoroughly testing the system before it is rolled out, to make sure that it is user-friendly. We want to make sure that the testing reflects the needs and is easy to use. We are trying to oversample people with records on paper, for example.

‘From April 2017, the challenge will be to raise awareness but we do not want to rush out communications to landlords and small businesses without careful planning.’

The radical overhaul of the tax reporting system has come in for criticism as being too rushed and the original timetable is being adhered to despite the fact the original April 2016 consultation phase was delayed by four months due to the EU referendum. In effect, this has meant that the rollout timetable has become truncated.

‘We came in for some criticism from the Treasury Committee that the plans were rushed and there are concerns that landlords and small businesses do not know very much about it. We do have plans to raise awareness about it, but the priority is to work with agents and software developers. We can more easily communicate with them than with five million small businesses.

‘The agent services project needs to be delivered by April as we need agents to be able to join the Making Tax Digital trial. We are building a range of services, which will be available through APIs and some will be bundled, which will connect directly with our system.

‘It is very much part of our plan to enable agents to be part of the trial from April,’ added Middleton.

Penalties

‘There will be a soft landing for penalties for a 12-month period but we are planning to consult further on the penalty system with a new consultation in the spring.’

Draft legislation and an HMRC impact assessment have been issued today.

The Making Tax Digital consultation feedback and outcome is here

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