by David Watkinson www.warringtonaccountants.co.uk
The whole of the UK economy is facing the prospect of massive traumas over the next few months and years.
Coronavirus has caused a massive upset. Not only has the economy suffered it’s biggest recorded contraction in the last quarter, but as the much welcomed government support under the Job Retention Scheme comes to an end we are seeing huge redundancies, especially in the retail and service industries, being announced. And on top of that, Brexit is beginning to rear it’s ugly head again, with all of the resulting uncertainty in international trading relationships faced by UK institutions and industry.
With all this coming rapidly down the road you would expect the government to try and avoid causing more upset. Do not believe it! The whole of British business, including micro and small businesses are facing even more upset with the proposed extension of Making Tax Diabolical (“MTD”). Oh apologies, I meant, of course, Making Tax Digital.
On 21 July the Treasury set out a first draft of the government’s ten-year plan to modernise the tax administration system, including restarting MTD program which had ground been delayed by Brexit and the coronavirus pandemic.
Value Added Tax
Firstly, VAT. Currently the MTD regime is only compulsory for VAT registered traders who are required to be VAT registered as they have taxable turnover of over £85,000. An estimated one million VAT registered businesses with lower annual turnover are not required to enter the MTD regime. It has now been confirmed that all VAT registered traders will have to use MTD compatible software to file their VAT returns with effect for VAT periods starting on and after 1 April 2022. They will also be required to keep the VAT records in a digital format.
Around 30% of these small VAT-registered businesses have already been using MTD software voluntarily. The strategy paper says “there have also been lessons learned, which will be used to inform and shape the introduction of the next phases of digital implementation”. Those lessons are certainly required, and need to extend beyond the fairytales told by Quickbooks in their TV advertising.
Income Tax
And then we come to Income Tax. The MTD programme was originally planned to start with quarterly reporting for income tax, but the focus switched to VAT as it was perceived to be an easier transition for businesses that were used to making at least quarterly returns.
The ten-year plan sets a goal of April 2023 for micro self-employed businesses and unincorporated landlords to commence quarterly reporting through MTD software, and to keep digital records. Around four million unincorporated businesses and landlords with annual turnover exceeding £10,000 per year will be drawn into MTD.
However, the roll-out may be different to that initially envisaged as HMRC says it will draw on everything that has been learned from the implementation of the VAT service to date, and responses to the MTD evaluation document, which was published in March.
Corporation Tax
Finally, Corporation Tax. We have been waiting nearly four years for a consultation document on MTD for corporation tax, and now we are promised such a paper will be published in the autumn.
There is no mention of MTD for complex bodies such as large partnerships. When MTD for income tax was first proposed it was quickly apparent that quarterly reporting would not be practical for very large partnerships and LLPs which operate more like companies, but are legally partnerships where the individual partners pay income tax.
The thorny problem of mixed partnerships – LLPs with corporate members – was not addressed at all in the original MTD proposals. It will be interesting to see if the consultation paper released in the autumn squares the circle of corporation tax and income tax reporting by the same body
Paying The Right Tax
Most people recognise their responsibility to pay the right amount of tax, and the government is also exploring the timing and frequency of tax payments, to make them more “real time” to align with the reporting of tax information. HMRC says it wants to make it as easy as possible for people to pay the right amount of tax and make it harder for taxpayers to avoid paying tax. The government argues that using digital technologies, which permit HMRC to make interventions earlier, will prevent tax loss and reduce the tax gap.
Administration
The final part of the introduction of MTD is to identify a range of ckhanges to include updating:
•Obligations of taxpayers and HMRC
•Penalties and sanctions for failing to comply with obligations
•Taxpayers rights and safeguards
•How taxpayers are identified and register with HMRC
•How tax liabilities are identified amended and assessed.
The plan says “Taxpayers should be able to view their tax position and tell HMRC anything it needs to know through a single online account.” This implies that the personal tax account and business tax account will be merged.
The plan calls for the changes to be introduced steadily. We certainly agree with this. Education is critical. People operating small businesses are not bookkeepers, and our experience is that there are frequently extensive errors in the records even of those businesses currently caught by MTD. In the past, HMRC have placed much more emphasis on penalties and sanctions than on education. Hopefully, this will change in the future. Unfortunately, we very much doubt it.
WatkinsonBlack have considerable experience in all areas of taxation and businesss services, including providing a very cost-effective payroll bureau service. If you want to arrange a no-obligation initial meeting on any taxation or accounting matter then please contact us. Please note that these ideas are intended to inform rather than advise and you should always obtain professional advice before taking any action.
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