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HMRC Clarifies Making Tax Digital

HMRC has announced the results of its consultation into Making Tax Digital, a scheme it first unveiled in 2015 to put an end the yearly tax return and digitise the tax system.

 

The consultation invited responses from interested parties, including businesses, contractors and landlords, to help address any concerns about the move towards digital reporting.

 

Some key aspects of the scheme have been clarified following this consultation.

 

Software and reporting

 

Concerns had been raised that Making Tax Digital would pose difficulties to small businesses who struggle to make use of technology.

 

HMRC has since confirmed that businesses will be able to continue using spreadsheets to record tax details, which can then be linked to software designed to send quarterly information updates to HMRC.

 

Free software will also be available to the majority of small businesses.

 

On the reporting front, businesses eligible for ‘three line accounts’ will continue to be able to submit quarterly updates with just three lines of data (income, expenses and profits) under Making Tax Digital.

 

Managing Making Tax Digital challenges

 

There are likely to be teething problems with Making Tax Digital, as we might expect with any new system.

 

Also, HMRC anticipates that transitional costs for UK businesses will be £280 per business from 2017-2021.

 

However, the challenges of the scheme are manageable and its overall aims are positive.

 

Firstly, taxpayers will have 12 months to become familiar with the changes before any late submission penalties are applied.

 

Also, if you’re working with a reputable accountancy company – and we can introduce you to one and secure you a preferential rate – then you’ll be able to check your tax liability with well over 90 per cent accuracy on a daily basis, let alone quarterly.

 

It’s also important to note that this is a challenge worth meeting. Digital record keeping is best practice, meaning contractors are less likely to be met with a nasty surprise when their tax bill lands.

 

On balance, we see Making Tax Digital as a positive move. While it poses a few challenges, these are manageable and have been taken seriously in the latest consultation.

 

We’ll be keeping an eye on how Making Tax Digital develops and sharing how it might affect you, but if you’re keen to discuss any aspect of the scheme do get in touch.