HM Revenue & Customs (HMRC) and small businesses alike are underestimating the gravity of Making Tax Digital (MTD) – a complete overhaul of the UK tax system as we know it, which will be mandatory for a huge chunk of Britain’s business world.
Since the project’s initial inception, Milsted Langdon has noted that HMRC’s proposals are immensely challenging and flawed. The Revenue is grossly underestimating the impact their tax systems overhaul will have on British businesses.
Milsted Langdon’s Tax Partner, Simon Denton, has been participating in numerous Making Tax Digital consultation meetings and our team has submitted a formal response to six MTD consultations opened in August 2016 – the results of which are expected to be unveiled in January alongside Finance Bill 2017.
But what is Making Tax Digital? Where did it come from? What is being proposed? And what do we think ought to be reassessed?
History of MTD
The idea first came to the fore during the Spring 2015 Budget, following comments from ex-Chancellor George Osborne about ‘the end of the tax return’. The bare bones of the project became known as Making Tax Digital (MTD) after the November 2015 Autumn Statement, yet very little information was released about the project until a consultation was opened in February the following year, which Milsted Langdon’s Tax Partner, Simon Denton, participated in to voice his concerns.
In August 2016, six consultation documents into separate aspects of MTD were opened – prompting Simon to attend further consultation meetings held in Cardiff and London, the former of which was organised by HMRC and the latter of which was organised by the Institute of Chartered Accountants in England and Wales (ICAEW).
What exactly is being proposed?
The most recent consultation documents into MTD reveal that businesses and landlords will be required to keep digital tax records and submit some form of information to HMRC ‘at least quarterly’.
From 6 April 2018, unincorporated businesses and landlords will need to be MTD compliant.
From 6 April 2019, VAT reporting will come into alignment with the MTD project.
From 6 April 2020, Corporation Tax will also come under MTD.
Digital exclusion is remarkably limited under current proposals and will extend only to people in rural areas with no broadband access, or to those with health or educational complications that effectively prevent them from engaging with MTD systems.
An exemption threshold of £10,000 per annum in gross income or rent has been proposed for landlords and small businesses.
Milsted Langdon calls for change
On top of Simon Denton’s participation in Making Tax Digital consultation meetings, Milsted Langdon has submitted a formal response to HMRC outlining the following proposals for change:
- The unrealistic £10,000 MTD threshold should be raised to meet the VAT threshold of £83,000.
- HMRC should delay the MTD project, which is currently asking for too much of our Government too soon in the wake of the EU Referendum.
- IF the Government insists on sticking to the current MTD timetable in January 2017, HMRC should roll out MTD as voluntary as opposed to mandatory.
Making Tax Digital: Simon Denton speaks up
Milsted Langdon’s Tax Partner, Simon Denton, has been keeping a watchful eye over Making Tax Digital developments since the former Chancellor first announced HMRC’s intentions.
He says: “Making Tax Digital will have a huge impact on businesses, particularly those at the smaller end of the spectrum, yet HMRC continues to underestimate the gravity of its hugely ambitious project.
“An ICAEW survey earlier this year found that 75 per cent of all businesses and 82 per cent of sole traders would need to completely replace their current record keeping systems to comply with HMRC’s tech shake-up.
“Milsted Langdon estimate that around half of our client base are not currently prepared to proceed with MTD as per HMRC’s current timescale if the Government decides to power ahead with its proposals come January 2017.
“In light of this, our team intend to run a series of Making Tax Digital seminars in the spring, once further details of the project have been outlined in Finance Bill 2017. Our seminars will seek to advise businesses and landlords on their best next step forward – and how Milsted Langdon may be able to help ensure a smooth transition to an all-digital tax system”.