Making tax digital - consultations

Background

In 2015 the government announced plans to make tax digital by 2020. 'Making Tax Digital', or MTD as it has been labelled, involves introducing digital tax accounts which will be pre-populated with figures for employment income, bank interest, and other information such as state pensions which HMRC already receives from third parties.

This may make life easier for some taxpayers and the government has suggested it will remove the need for self assessment tax returns. However for the self-employed, or those with property income, MTD could prove more challenging than submitting an annual self assessment tax return. This is because they will be required to keep their accounting records digitally using accounting software and update their digital tax accounts at least quarterly. HMRC suggests this will increase the accuracy of what is reported and help close the tax gap.

What's happening now?

HMRC has issued six formal consultation documents on different aspects of Making Tax Digital. There is also a shorter overview document.

HMRC have said that they recognise that these reforms are ambitious and radical and there is a lot to design and develop before 2020. They have also said they recognise it is important that they consult widely with interested parties to help shape these changes. The six consultations set out detailed plans on how they propose to make tax digital and to simplify the tax system, covering:

• how digital record keeping and regular updates will operate;
• options to simplify tax for unincorporated businesses, including how the self-employed map accounting periods onto the tax year, extending cash basis accounting and reducing reporting requirements for unincorporated businesses;
• extending cash basis accounting to unincorporated property businesses, making life simpler for landlords;
• how the voluntary pay as you go arrangements announced at this year’s Budget will work;
• changes to tax administration to effectively underpin compliance with MTD and ensure we have a fair and proportionate penalties regime; and
• how HMRC will make better use of the information we currently receive from third parties to provide a more transparent service for customers.

What has the NFU been doing?

During the last year the NFU has regularly attended HMRC digital stakeholder groups to discuss the proposed new obligations and our concerns over rural broadband infrastructure, additional costs and increased administrative burden when many of the suggested benefits such as predicting your tax liability do not seem realistic for a farming business. We have also organised farm visits for HMRC senior officials to discuss their proposals.

Our initial thoughts

We anticipate that the consultation document entitled Making Tax Digital: Bringing business tax into the digital age, which outlines the proposed new obligations for digital record keeping, quarterly updates, and 'end of year' activity, will be of most interest to members.

We believe issues for our members are likely to include their ability to meet the proposed new reporting obligations given the limitations of their digital infrastructure, the additional cost of doing so, and the apparent lack of tangible benefits to their business, and the time scale for implementation.