Government’s proposal for Making Tax Digital (MTD) has received a widespread criticism, yet the political and business groups have agreed that online is the only way for taxation to go forward. Currently it seems that the new legislation is going to arrive either the next year or in 2020 and all the businesses will have to adapt to the changes it brings.
What is Making Tax Digital or MTD?
Making Tax Digital (MTD) is an HMRC initiative that will revolutionize the UK tax system and ultimately bring an end to self-assessment tax. It is matter of time that the changes in the legislation come into effect, it is speculated that by April 2019 it is going to be applied. When the changes come, most of the businesses will have to submit the quarterly online tax returns through software which will be approved by hmrc self-assessment. All these updates are going to be followed by end-of-year reconciliation to make sure activities for the whole year have been recorded properly for taxation. As we came to know from the taxman, following changes will be achieved:
The government has consulted on these proposals the last year and has also said that they are going to respond very soon to the consultation. Last year HMRC has published the draft Finance Bill which includes the clauses for necessary changes to be legislated.
Commons Treasury Committee has stated that the small firms could be spelled with disaster with the radical plans and they also feared that many outsourcing accounting for small business firms may face the out of business situation.
Though the Committee well supports the idea of reporting of the tax being digitized, it also stresses that there is no proof that the quarterly reporting and record keeping through mandatory digitization can be beneficial and that there should be a detailed set of pilot systems before it becomes obligatory for every business.
Committee is also concerned about the economic (cost) impact of introducing and maintaining MTD on small businesses as the information about the free software which will help to submit taxes is not sufficient still now. Committee feels that all these extra costs are going to surpass the benefits to exchequer in tax gap reduction terms as the result of few taxpayer errors leading to MTD’s overall impact being negative.
In response to the conclusion of a report regarding MTD, Committee Chairman, Andrew Tyrie has said that if the digitization of tax records and the reporting i.e. MTD can be introduced carefully then it can make a great opportunity to improve tax system administration for long term. But without careful approach, MTD could be disastrous. He also said that if it is implemented with proper care where it is necessary along with the arrangements that are long transitional and that it gets full information from inclusive pilots, then Making Tax Digital can be beneficial both for the tax yield and the economy. According to Andrew if it is introduced in a rush then it is not going to benefit the system.
Recommendations by the Treasury Committee:
It is to be seen whether the Government is likely to take note of Committee’s recommendations and all the related concerns and the suggestions which are voiced by bodies like the Institute of Chartered Accountants in England and Wales or ICAEW and the Chartered Institution of Taxation.
Though, one thing is certain that Making Tax Digital (MTD) is going to be placed in the legislation system in a very short space of time.
Mostly those business with exceeding taxable turnover then the threshold of VAT registration will have to keep their records digitally using the compatible software for MTD functioning and then create VAT return from the software or combination of software; mostly for return periods.
Some of the challenges business and their advisers going to face due to MTD are:
Right now, it is hard to predict the exact timing of the implementation and the total impact of MTD on businesses, but one thing is for certain, it will lead to more work for the accountants. Accountants will have to deal with not only more inquiries but make sure that all their existing customers are fully complied with MTD. Accountants may have to find innovative ways to deal with such deluge of work.
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