Making Tax Digital
Discussion
Interesting developments in the MTD saga post election -
David Gauke, the minister responsible for implementing MTD has been moved over to Pensions. His replacement is Liz Truss, who has a very short time now to get up to speed on her brief. She has, in effect, been demoted from her previous position.
Jane Ellison, the Exchequer Secretary to the Treasury who is the day to day person between government and HMRC lost her seat. She's been replaced by Mel Stride - who is completely new to dealing with HMRC and the Treasury.
So, key people in the MTD team have been removed from the picture.
Another little factoid I picked up is that, we started this process assuming that MTD replaced the annual; tax return (as boasted about by George Osborne). It then became FOUR returns - one for each quarter.
It then became FIVE returns, four quarterlies plus and an annual reconciliation.
Now we know it will be SIX - four quarterlies, an annual reconciliation AND and an annual final declaration (effectively, the equivalent of the current Self Assessment tax return)
And, of course, if you have a number of different sources of income that needs to be returned quarterly, you can multiply the number of returns you need to submit by the number of separate income sources.
So - two sources of income (say sole trader and rental income), you have 11 submissions to make.
If you have three or more, you can expect to be spending a good chunk of your time submitting data to HMRC.
Have fun.
David Gauke, the minister responsible for implementing MTD has been moved over to Pensions. His replacement is Liz Truss, who has a very short time now to get up to speed on her brief. She has, in effect, been demoted from her previous position.
Jane Ellison, the Exchequer Secretary to the Treasury who is the day to day person between government and HMRC lost her seat. She's been replaced by Mel Stride - who is completely new to dealing with HMRC and the Treasury.
So, key people in the MTD team have been removed from the picture.
Another little factoid I picked up is that, we started this process assuming that MTD replaced the annual; tax return (as boasted about by George Osborne). It then became FOUR returns - one for each quarter.
It then became FIVE returns, four quarterlies plus and an annual reconciliation.
Now we know it will be SIX - four quarterlies, an annual reconciliation AND and an annual final declaration (effectively, the equivalent of the current Self Assessment tax return)
And, of course, if you have a number of different sources of income that needs to be returned quarterly, you can multiply the number of returns you need to submit by the number of separate income sources.
So - two sources of income (say sole trader and rental income), you have 11 submissions to make.
If you have three or more, you can expect to be spending a good chunk of your time submitting data to HMRC.
Have fun.
The new Secretary to the Treasury, Mel Stride, has mad his first public comments on Making Tax Digital. It's all a bit vague -
Making Tax Digital is a key government initiative. Are we still on track for implementation in April 2018?
Before the election the government began piloting Making Tax Digital systems. This is still very early stage but we look forward to making further progress in the coming weeks and months.
What benefits will the Making Tax Digital initiative have for UK businesses?
Millions of businesses are already banking, paying bills, and interacting with each other and their customers online. Making Tax Digital has the potential to ensure that businesses to get a clearer picture of their tax liabilities in year, helping them to plan ahead. It also promises help businesses to get their tax right first time, reducing the worry that HMRC may need to intervene.
For those business that have limited digital capabilities, will the necessary support be offered in order to help them through the digitisation process?
The overwhelming majority of businesses recognise that going digital is the way forward and 93% of income tax payers already file their returns online. As someone with a business background, I am acutely aware of how important it is for businesses to receive the right support they need to deal with transitions of this kind. HMRC is fully committed to helping businesses and agents adapt to a more digital system. The Finance Bill will be presented in parliament shortly and will set out our plans in detail.
Making Tax Digital is a key government initiative. Are we still on track for implementation in April 2018?
Before the election the government began piloting Making Tax Digital systems. This is still very early stage but we look forward to making further progress in the coming weeks and months.
What benefits will the Making Tax Digital initiative have for UK businesses?
Millions of businesses are already banking, paying bills, and interacting with each other and their customers online. Making Tax Digital has the potential to ensure that businesses to get a clearer picture of their tax liabilities in year, helping them to plan ahead. It also promises help businesses to get their tax right first time, reducing the worry that HMRC may need to intervene.
For those business that have limited digital capabilities, will the necessary support be offered in order to help them through the digitisation process?
The overwhelming majority of businesses recognise that going digital is the way forward and 93% of income tax payers already file their returns online. As someone with a business background, I am acutely aware of how important it is for businesses to receive the right support they need to deal with transitions of this kind. HMRC is fully committed to helping businesses and agents adapt to a more digital system. The Finance Bill will be presented in parliament shortly and will set out our plans in detail.
With only months to go before implementation, HMRC still can't make it's mind up what type of penalty regime will be part of MTD -
In a new consultation, the government set out three possible models to penalise late payments and submissions with a plan to implement one:
Model A: a revised version of the points-based model proposed in the last consultation, where a penalty would be charged when a certain points threshold is reached (similar to driving offence points).
Model B: a regular, automated review over a set period of time with points being given subject to compliance history.
Model C: Suspensions of penalties – the taxpayer can avoid a penalty if they provide the late submission within a specified time.
In a new consultation, the government set out three possible models to penalise late payments and submissions with a plan to implement one:
Model A: a revised version of the points-based model proposed in the last consultation, where a penalty would be charged when a certain points threshold is reached (similar to driving offence points).
Model B: a regular, automated review over a set period of time with points being given subject to compliance history.
Model C: Suspensions of penalties – the taxpayer can avoid a penalty if they provide the late submission within a specified time.
Major major announcement today by new Secretary of the Treasury, Mel Stride -
Mel Stride, Financial Secretary to the Treasury and Paymaster General said:
Businesses agree that digitising the tax system is the right direction of travel. However, many have been worried about the scope and pace of reforms.
We have listened very carefully to their concerns and are making changes so that we can bring the tax system into the digital age in a way that is right for all businesses.
Under the new timetable:
only businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records and only for VAT purposes
they will only need to do so from 2019
businesses will not be asked to keep digital records, or to update HMRC quarterly, for other taxes until at least 2020
Making Tax Digital will be available on a voluntary basis for the smallest businesses, and for other taxes.
This means that businesses and landlords with a turnover below the VAT threshold will be able to choose when to move to the new digital system.
As VAT already requires quarterly returns, no business will need to provide information to HMRC more regularly during this initial phase than they do now.
All businesses and landlords will have at least two years to adapt to the changes before being asked to keep digital records for other taxes.
This is absolutely BRILLIANT news and proves that the whole thing was a misguided and lunatic concept.
Mel Stride, Financial Secretary to the Treasury and Paymaster General said:
Businesses agree that digitising the tax system is the right direction of travel. However, many have been worried about the scope and pace of reforms.
We have listened very carefully to their concerns and are making changes so that we can bring the tax system into the digital age in a way that is right for all businesses.
Under the new timetable:
only businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records and only for VAT purposes
they will only need to do so from 2019
businesses will not be asked to keep digital records, or to update HMRC quarterly, for other taxes until at least 2020
Making Tax Digital will be available on a voluntary basis for the smallest businesses, and for other taxes.
This means that businesses and landlords with a turnover below the VAT threshold will be able to choose when to move to the new digital system.
As VAT already requires quarterly returns, no business will need to provide information to HMRC more regularly during this initial phase than they do now.
All businesses and landlords will have at least two years to adapt to the changes before being asked to keep digital records for other taxes.
This is absolutely BRILLIANT news and proves that the whole thing was a misguided and lunatic concept.
PurpleMoonlight said:
What does keeping digital records for VAT mean though?
Isn't it obvious?It is to HMRC.
What they mean by this is presenting the quarterly information to HMRC in a digital format that THEY approve.
They are restricting the submissions to VAT only up to April 2020. However, what this means is that the VAT return will have to be summarised and submitted using third party commercial software and not the HMRC VAT "screens" that are currently available to VAT registered entities.
How and when the current VAT submission system is actually decommissioned and will no longer be available is not mentioned in this press release.
The good news is that MTD for other taxes i.e. Income Tax - is postponed until AT LEAST April 2020.
hondafanatic said:
I've been following this thread purely to learn about what's happening with this situation even though I am and will always be a PAYE employee. (If I'm honest I slightly stalk you Eric as you explain various business/tax/accounting things very well and I find it all very interesting for no other reason than learning is a good thing)
I've picked out your last paragraph and just wanted to ask if you considered that they might have genuinely listened to feedback and even though they thought they were being ambitious, they've adapted and responded well? Or am I just being nieve? It seems they did a 'throw it at the wall and see what sticks' approach.
It's a genuine questions, not meant to be antagonistic...
During World War 2 Winston Churchill said "You can always count on Americans to do the right thing - eventually.I've picked out your last paragraph and just wanted to ask if you considered that they might have genuinely listened to feedback and even though they thought they were being ambitious, they've adapted and responded well? Or am I just being nieve? It seems they did a 'throw it at the wall and see what sticks' approach.
It's a genuine questions, not meant to be antagonistic...
I think, in this case, we can apply the same epithet to HM Treasury.
Reality finally hit home, I reckon. The schedule they were promoting was WAY too ambitious and it was highly likely that their own systems would never be ready in time. Indeed, I think 2020 is still pushing it a bit,
And just to show how much they underestimate what is involved, their old and fairly reliable self assessment software has collapsed this year due to some of the permutations now existing in tax calculations because of changes to bank interest and dividend income zero rate tax thresholds.
They have admitted that many 2016/17 tax returns already submitted will result in incorrect tax calculations BY THE HMRC SOFTWARE.
Now that they know there is a problem, they will reject any further internet submissions that give rise to an incorrect calculations and the advice is to send the returns in on paper. This means that for tax year 2016/17, HMRC will be receiving more paper tax returns compared to 2015/16 and 2014/15 - AND ALL DOWN TO FAILINGS IN THEIR OWN SYSTEMS.
They HOPE to have a fix in place by the end of October.
In normal circumstances, paper returns sent in after October will receive an automatic and unappealable £100 penalty. This year, they will waive the penalty IF THE TAXPAYER REMEMBERS TO WRITE AN EXPLANATION AS TO WHY THE PAPER RETURN IS GOING IN AFTER 31 OCTOBER in the "white spaces" area of the tax return.
This is a bit of a disaster waiting to hit the fan sometime between 1 November 2017 and 31 January 2018.
No problem.
The reason I started this thread was because of the woeful lack of reporting that was going on in respect of MTD in the mainstream media. Even today, the news that it has been more or less dropped for the foreseeable future has not made any mainstream media news. The only media that has reported it are specialist tax and accounting magazines and websites and, to give them their credit, BBC Radio 4 in their "Money Box" and "Money Box Live" programmes.
I know there quite a few people on PH who run their own businesses so this was relevant to them - so I thought they deserved to know.
Because of the massive uncertainty surrounding what ACTUALLY was involved in MTD, and the original looming implementation date of 6 April 2018, I thought that people needed to know what was happening.
The reason I started this thread was because of the woeful lack of reporting that was going on in respect of MTD in the mainstream media. Even today, the news that it has been more or less dropped for the foreseeable future has not made any mainstream media news. The only media that has reported it are specialist tax and accounting magazines and websites and, to give them their credit, BBC Radio 4 in their "Money Box" and "Money Box Live" programmes.
I know there quite a few people on PH who run their own businesses so this was relevant to them - so I thought they deserved to know.
Because of the massive uncertainty surrounding what ACTUALLY was involved in MTD, and the original looming implementation date of 6 April 2018, I thought that people needed to know what was happening.
That's what was released about three weeks ago - which I commented on above.
There are LOADS of issues that still need to be clarified.
i) MTD is for the first few years going to be about VAT only. So they are stating that only businesses that exceed the VAT threshold need to adopt MTD. The problem there is that there are lots of businesses that are registered for VAT even though they trade below the Registration threshold. Are they going to have to comply with VAT MTD even though their turnovers are below the current £85,000? If not, then does HMRC plan to run two separate but parallel VAT systems, one MTD compliant and the current non MTD compliant systems for smaller traders?
ii) originally. MTD was specifically aimed at sole traders and partnerships. Now that it is being aimed at VAT rather than Income Tax, does that mean that limited companies will have to comply with VAT MTD requirements at least a year earlier than the old (now abandoned) timetable had suggested?
iii) there are also many businesses that trade above (well above, in some cases) the VAT registration threshold but, because of the nature of what they do, are not required to register for VAT. What about them? Will they be exempted from MTD even though they are sizeable businesses purely because they aren't required to register for VAT.
iv) there are many entities that have to register for VAT (schools, local government bodies, police forces etc) that are not businesses. Are they required to comply with MTD for VAT? Because up to now, the word "business" has been bandied about as if it is only trading entities that have to register for VAT . That is not the case.
v) how does an MTD VAT system cope with the following VAT systems which are currently allowed -
Flat Rate Scheme
Annual Accountuing for VAT
Monthly Accounting for VAT
MTD is all about quarterly returns. VAT registered traders can opt for alternative ways for submitting their VAT. Will these alternative (and very useful) schemes now become a thing of the past?
As ever, more questions have been raised by the MTD u-turn than were answered.
There are LOADS of issues that still need to be clarified.
i) MTD is for the first few years going to be about VAT only. So they are stating that only businesses that exceed the VAT threshold need to adopt MTD. The problem there is that there are lots of businesses that are registered for VAT even though they trade below the Registration threshold. Are they going to have to comply with VAT MTD even though their turnovers are below the current £85,000? If not, then does HMRC plan to run two separate but parallel VAT systems, one MTD compliant and the current non MTD compliant systems for smaller traders?
ii) originally. MTD was specifically aimed at sole traders and partnerships. Now that it is being aimed at VAT rather than Income Tax, does that mean that limited companies will have to comply with VAT MTD requirements at least a year earlier than the old (now abandoned) timetable had suggested?
iii) there are also many businesses that trade above (well above, in some cases) the VAT registration threshold but, because of the nature of what they do, are not required to register for VAT. What about them? Will they be exempted from MTD even though they are sizeable businesses purely because they aren't required to register for VAT.
iv) there are many entities that have to register for VAT (schools, local government bodies, police forces etc) that are not businesses. Are they required to comply with MTD for VAT? Because up to now, the word "business" has been bandied about as if it is only trading entities that have to register for VAT . That is not the case.
v) how does an MTD VAT system cope with the following VAT systems which are currently allowed -
Flat Rate Scheme
Annual Accountuing for VAT
Monthly Accounting for VAT
MTD is all about quarterly returns. VAT registered traders can opt for alternative ways for submitting their VAT. Will these alternative (and very useful) schemes now become a thing of the past?
As ever, more questions have been raised by the MTD u-turn than were answered.
Alucidnation said:
So, not the "we are all doomed" scenario then.
Well, they've seen sense, haven't they and back pedalled massively on the original plans. There are still lots of issues remaining in respect of the severely watered down version that remains - but at least the bonkers timetable they had been telling us was immutable turned out to be very mutable indeed.It's amazing what a good kick in the teeth from the voters can achieve..
No - you need to include on the self assessment ALL your income from ALL sources INCLUDING income that has already been dealt with under PAYE.
So, you need to include -
Your salary and the PAYE deducted from it (as per the P45)
your self employment income and expenditure (showing whether it made a profit or loss) and any capital allowances you intend to claim for equipment etc
any other income such as interest received or dividends
So, you need to include -
Your salary and the PAYE deducted from it (as per the P45)
your self employment income and expenditure (showing whether it made a profit or loss) and any capital allowances you intend to claim for equipment etc
any other income such as interest received or dividends
Simple answer is, "we don't know yet".
Originally, the submissions for MTD were going to include every single transaction - not just the numbers and details but copies of the actual underlying documents, such as sales invoices, purchase invoices, bank statements etc.
In the massive reshuffle that happened in January 2017, this was drastically reduced in scope to just totals for each quarter (a bit like current VAT returns).
Now that they are saying MTD is primarilly for VAT (at least at first) we have not been told if they are reverting to the original "full fat" version of MTD or the "skinny" version. As you imply, the skinny version is very much what VAT returns are at the moment. So the question has to be, why bother?
The main difference between an MTD VAT return and a current VAT return (which is actually digital already) is that you will not be able to go to your Government Gateway access point to make the return. In fact the Government Gateway is going to be shut down to make way for MTD. Instead, you will have to make the MTD VAT Return using 3rd party commercial software.
That is why I mentioned the possibility that there might be two separate VATY systems running parallel to each other - the current one for small traders and the MTD for those with turnovers exceeding the VAT Registration Threshold.
By and large, the filing and payment deadlines are staying the same - but the additional 7 days you are given at the moment to submit the return will go (it was originally brought in to encourage those who were still submitting VAT returns on paper to switch to electronic filing. It was left in place even when electronic filing became compulsory.
Originally, the submissions for MTD were going to include every single transaction - not just the numbers and details but copies of the actual underlying documents, such as sales invoices, purchase invoices, bank statements etc.
In the massive reshuffle that happened in January 2017, this was drastically reduced in scope to just totals for each quarter (a bit like current VAT returns).
Now that they are saying MTD is primarilly for VAT (at least at first) we have not been told if they are reverting to the original "full fat" version of MTD or the "skinny" version. As you imply, the skinny version is very much what VAT returns are at the moment. So the question has to be, why bother?
The main difference between an MTD VAT return and a current VAT return (which is actually digital already) is that you will not be able to go to your Government Gateway access point to make the return. In fact the Government Gateway is going to be shut down to make way for MTD. Instead, you will have to make the MTD VAT Return using 3rd party commercial software.
That is why I mentioned the possibility that there might be two separate VATY systems running parallel to each other - the current one for small traders and the MTD for those with turnovers exceeding the VAT Registration Threshold.
By and large, the filing and payment deadlines are staying the same - but the additional 7 days you are given at the moment to submit the return will go (it was originally brought in to encourage those who were still submitting VAT returns on paper to switch to electronic filing. It was left in place even when electronic filing became compulsory.
It's all wonderful and lovely.
Not only were the software manufacturers "assisting" HMRC - they were actually helping to drive it (what a surprise). In fact, one of the main originators at HMRC who came up with the idea is now working for Sage.
It's so marvelous that most of it has been scrapped. The EARLIEST we MIGHT see it in operation is 2020. I doubt that this will even happen. HMRC will have its plate full with all sorts of issues - including a massive restructuring of VAT and customs regulations which will have to take place because of Brexit. They have also lost a number of key IT contractors because of their own changes to IR35 rules. Talk about shooting themselves in the foot.
I am pretty sure that Mel Stride will quietly squash this whole nonsense eventually.
Not only were the software manufacturers "assisting" HMRC - they were actually helping to drive it (what a surprise). In fact, one of the main originators at HMRC who came up with the idea is now working for Sage.
It's so marvelous that most of it has been scrapped. The EARLIEST we MIGHT see it in operation is 2020. I doubt that this will even happen. HMRC will have its plate full with all sorts of issues - including a massive restructuring of VAT and customs regulations which will have to take place because of Brexit. They have also lost a number of key IT contractors because of their own changes to IR35 rules. Talk about shooting themselves in the foot.
I am pretty sure that Mel Stride will quietly squash this whole nonsense eventually.
Update -
more waffly information released by HMRC
MTD for VAT coming in for all returns after April 2019 (1 year and 5 months from now)
Excel will now NOT be allowed
The current VAT Gateway system is being discontinued
Traders MUST BUY (not yet invented) commercial software to do the new style returns. The Free software suggestion made by HMRC seems to have been quietly forgotten.
The new VAT returns will contain summary details of all underlying transactions making up the total s in the VAT return boxes i.e. the VAT return is no longer going to be a submission of totals only
The software will allow HMRC to send stuff electronically to the trader - such as penalty notifications and warnings etc
AT the moment 90% of VAT returns are filed using the Government Gateway boxes only - i.e. the underlying data is not sourced directly from any software the trader might be using. The boxes are completed manually by either the trader or his/her agent This will mean that all traders must acquire new software to comply.
HMRC has not outlined any information as to how or what agents can do in regard to making MTD VAT submissions.
more waffly information released by HMRC
MTD for VAT coming in for all returns after April 2019 (1 year and 5 months from now)
Excel will now NOT be allowed
The current VAT Gateway system is being discontinued
Traders MUST BUY (not yet invented) commercial software to do the new style returns. The Free software suggestion made by HMRC seems to have been quietly forgotten.
The new VAT returns will contain summary details of all underlying transactions making up the total s in the VAT return boxes i.e. the VAT return is no longer going to be a submission of totals only
The software will allow HMRC to send stuff electronically to the trader - such as penalty notifications and warnings etc
AT the moment 90% of VAT returns are filed using the Government Gateway boxes only - i.e. the underlying data is not sourced directly from any software the trader might be using. The boxes are completed manually by either the trader or his/her agent This will mean that all traders must acquire new software to comply.
HMRC has not outlined any information as to how or what agents can do in regard to making MTD VAT submissions.
Edited by Eric Mc on Sunday 17th September 11:03
plasticpig said:
Their will be free software available. The user might have to click through some adverts and it will be pretty limited in functionality but it will be free and be fully compliant. It will undoubtedly include an option to import data from Excel.
HMRC stated last week that there will be no fee software for the initial VAT version of MTD. Free software was always intended for the tiny traders only - those with turnovers of £10,000 or less. The accounting profession and other interested parties fought hard to have MTD restricted to those over the VAT threshold. This bastardised version of MTD for VAT is partly in response to this pressureWhat HMRC has not clarified anywhere is what happens for traders who are VAT registered but whose turnover is below the compulsory registration threshold. There are many smaller traders who are registered for VAT even though their sales have not reached the point where they would be legally obliged to register.
At the moment, it seems that they will also have to register for MTD VAT even though they are below the supposed turnover threshold for MTD.
The only alternative would be for HMRC to keep two separate VAT submission systems operating in parallel - the current simple and easy Government Gateway system and the new more sophisticated and detailed MTD version.
I don't think HMRC wants to do this but, as ever, they have failed to put any real detail into any of their statements.
PurpleMoonlight said:
Do you file VAT returns for clients Eric?
As well as my Ltd I have to do 20 odd VAT returns for pension schemes.
Only a small number. I have always encouraged my clients to file their own wherever possible.As well as my Ltd I have to do 20 odd VAT returns for pension schemes.
Another area not clarified by HMRC is how agents fit into the new VAT MTD filing system.
Eric
Gassing Station | News, Politics & Economics | Top of Page | What's New | My Stuff