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What does Making Tax Digital actually mean for the way accounts are processed?

Posted by Wolters Kluwer News on 14-Jul-2016 14:57:00

When we first started hearing about businesses and landlords having to file quarterly accounts data to HMRC, much was said about the administrative burden on those who currently collect all their scraps of paper and hand them to their accountant to make sense of at the end of the year. There were many taxpayers and their advisers who were untroubled by this announcement, knowing that they kept their accounts in an orderly manner on spreadsheets, using the results to complete their VAT returns on line.

However, it has now come to light that spreadsheets will not suffice. Indeed Andrew Tyrie, Chairman of the Treasury Select Committee, has written to David Gauke, financial secretary to the Treasury, saying it has only just become apparent that businesses would need to supply information in a format which was compatible with HMRC systems, so the transfer is automatic.

'Until last month there was a general understanding among most tax professionals that businesses could use their own choice of package for their record keeping, as long as it was digital. 'Digital had not been clearly prescribed and was understood to include, for example, MS Excel. It was only recently that HMRC's apparent intended meaning - that businesses will be required to use particular software, and systems that are compatible with HMRC's - has become clear,' Tyrie wrote.

The committee has previously flagged up worries that small businesses might find it difficult or costly to meet the requirements of MTD because they did not use digital technology, but Tyrie now says that large businesses are also likely to face challenges.

He quotes an ICAEW survey which found that 75% of all businesses, and 82% of sole traders, would need to change their record keeping systems to comply with MTD. 'If this sample is representative, and if their fears are borne out, then it seems implausible that MTD could generate large savings to business - as the government is forecasting. On the contrary, the vast majority of businesses may face increased compliance costs. This would be a cause for serious concern,' Tyrie said.

In an earlier exchange of letters on the topic of MTD, Gauke said that the ‘the proposed changes will contribute to HMRC's target to reduce business burdens by £400m'. He also said at the time that HMRC would make available free apps for ‘those with the most straightforward affairs’.

In contrast, Tyrie says that there is a risk that HMRC’s planned approach will leave businesses and their customers ‘to foot the bill for the transition’ to MTD. ‘The extra burden placed on small businesses by MTD was already a source of considerable concern. It now appears that large businesses could also be affected, if their software and systems are not compatible with HMRC’s requirements. This would make early implementation all the more unacceptable. Before anything is done to implement these proposals, the government now need to provide a comprehensive impact assessment. Full co-operation and consultation on it – with those most affected, and also with parliament – will be needed. An acceptable plan for its gradual introduction is also essential.’

Tyrie continues 'Many businesses are now very concerned that the need to establish and maintain a digital account will be mandatory, and at considerable cost to them. So a reassurance is needed from the government that no changes at all will be imposed until all three of the above have taken place will also help.'

It remains to be seen what impact this debate has on HMRC’s plans to introduce quarterly online accounting for all businesses and landlords by 2018.

Topics: MTD | All posts | Tax