HMRC Try To Justify Making Tax Digital

  • Mark Morton
  • 29 November 2016 00:00

As you all know by now, HMRC wish to 'improve' the tax system (aka cut costs) by Making Tax Digital. The six consultations set out detailed plans on how HMRC propose to make tax digital and to simplify the tax system, covering...

  • how digital record keeping and regular updates will operate - the main thrust of this is compulsory digital record-keeping and quarterly 'updates' to HMRC, with an End of Year declaration within nine months of the end of the period of account;
  • options to simplify tax for unincorporated businesses, including changes to basis periods, extending cash basis accounting and reducing reporting requirements for unincorporated businesses;
  • extending cash basis accounting to unincorporated property businesses, including non-resident landlords and those with furnished holiday lettings. There would be no turnover criteria but tax relief on interest costs would continue to be restricted to a maximum of 20%;
  • voluntary pay as you go arrangements, where taxpayers can pay what they want when they want, subject to the normal payment on account rules. In addition, regular direct debit arrangements and quarterly payments on account are also being considered;
  • changes to tax administration to effectively underpin compliance with MTD, including changes to the enquiry regime, penalties for late submission of quarterly updates and End of Year declarations and also the late payment of tax; and
  • how HMRC will make better use of the information which they currently receive from third parties to provide a more transparent service for customers - mainly the updating of PAYE codes more regularly and coding out of bank interest via PAYE in the short term.

Most of these ideas I am fairly ambivalent about; for example, I understand the attraction to some of paying their tax by monthly direct debit and cash basis for rental properties would make life easier for many (let's face it, many unrepresented taxpayers will be doing this anyway!)

However, the big sticking point in my mind is quarterly submission. It appears that this was originally designed to create current-year payments on account. Other than that, no-one in HMRC can tell me what the point of quarterly submission is!

However, on 10 November 2016 HMRC published the following statement in a letter to the Financial Times:

HM Revenue & Customs will not be asking anyone to file accounts five times a year, nor will we be introducing in-year quarterly payments. Businesses will simply send in-year updates to HMRC using information collated automatically by the same software used to record day-to-day transactions. This will help businesses pay the right amount of tax, taking away the need to put things right at a later date.

By my calculation four quarterly returns plus an end of year return = five!!!! This is more than the current one return.

So no quarterly payments and no obligation to state that the quarterly returns are actually accurate, so what is the point of quarterly returns? Rubbish in, rubbish out seems to help no-one.

It's about time HMRC thought about the practical implications. I for one think they should forget about quarterly data and imposed digital record-keeping over the next five years and move on. Here's hoping....

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