Making Tax Digital

[Eric Mc]

anonymous said:

[redacted]

You are an IT person - it comes naturally for people like you. It's your profession. It doesn't come naturally for everybody and it is arrogant and simple minded to assume it does.

But that can be typical of many in the IT world.

I have no problem with the law placing obligations on people to do things. What I don't like is the law insisting that you can only do things ONE WAY just to assist the law maker.

[Eric Mc]

fblm said:

anonymous said:

[redacted]

It depends. Probably not. It depends how much it costs their 'customers' to comply to the new system. If what Eric says is accurate, and we've no reason to believe it's not, then I'll wager the cost will be orders of magnitude higher than any savings at HMRC (if there really are any).

HMRC are also selling off 150 offices - so that's where they will be funding at least part of this project.

[Eric Mc]

Indeed, both the Parliamentary Accounts Committee and the Treasury Select Committee have asked HMRC to justify the numbers they have been putting out regarding both increased tax income and claimed cost savings. At the moment, HMRC has not been able to provide details as to how they have arrived at the figures they are quoting.

It's not very reassuring at all.

[Eric Mc]

Where did you get piece of information from?

The only opt out so far mentioned by HMRC was an exemption for tiny sole traderships i.e. those with a TURNOVER under £10,000 per year.

And that was only after some pressure was put on them by interested parties such as the Federation of Small Businesses.

None of the lectures I attended mentioned any choices other than "do it".

[Eric Mc]

Just received this e-mail -

THE HOT STORY



Digital tax plans could spell disaster

A report by MPs warns that plans to digitise the tax returns system are being rushed through and could end in "disaster". The Treasury Select Committee believes the government's ‘Making Tax Digital’ policy, due to come into force in April 2018, could put companies out of business or encourage tax avoidance because of the additional costs and administrative burdens placed on the smallest businesses. Committee chairman Andrew Tyrie said that the current timetable "looks unachievable" and called for a delay until at least 2019 to allow concerns to be addressed. At present, businesses with a turnover of under £10,000 will be exempt, and MPs also recommend increasing this threshold to £83,000. The report also cast doubt over an official forecast which suggested that MTD would bring in an additional £625m for the public purse. MPs believe that in reality, the plans could result in lost revenue for HMRC because of the anger provoked among taxpayers. The FSB claims that the changes will cost the average small company an extra £2,770 a year, in addition to the £3,600 that it already spends on tax advice. In response to the report, the ICAEW called on the government to delay the project and make it voluntary, at least for the smallest businesses, while the CIOT and ATT have also backed the report’s conclusions. Separately, the FT profiles one of HMRC’s trial “future workplaces” - a test bed for the vast new regional centres where it plans to consolidate its operations.

Source: The Times (14/01/2017) Financial Times (14/01/2017) Financial Times (14/01/2017) Independent i (14/01/2017) Yorkshire Post (14/01/2017)

[Eric Mc]

Don't confuse tax payments with tax compliance - two totally different things.

Pay as you go is only one element of the Making Tax Digital system. It is actually the least onerous and probably the one practical aspect of it - and the one thing that I wouldn't have objected to if they made it compulsory.

The problem is not the tax payment aspect, it's the tax compliance regime - which is excessive and difficult and far too intrusive for most businesses who have much better and important things to be doing with their time than constantly having to arrange their data in formats to suit HMRC and then submit said data at least four times a year.

Payments aren't the issue in this at all.

[Eric Mc]

How can HMRC insist that commercial companies provide free software? They have categorically stated that they won't be providing the software themselves.

[Eric Mc]

Wanna bet?

[Eric Mc]

Could be. It was originally announced by George Osborne in the 2015 Spring Budget but at that time the headline was "The Abolition of the Annual Tax Return" - which we now know was an utter lie.

http://www.bbc.co.uk/news/business-31937637

http://www.mirror.co.uk/news/uk-news/budget-2015-a...

[Eric Mc]

fblm said:

Eric Mc said:

Pay as you go...

Weirdly this year was the first time I had to pay tax up front based on last years total. Half right away with my 2015-16 payment and half again in 6 months. Personally I think it's a bit of a fvcking liberty demanding tax up front on estimated income for next year. Is this 'pay as you go'?

It's not quite "Pay as you go" but it's the equivalent system that was adopted when Self Assessment was introduced 20 years ago. I actually don't think it's too bad a way of doing things.

The Payment on Account you will be making on 31 January 2017 is for tax year 2016/17, which, when you think about, we are 3/4 of the way through already. HMRC's thinking is that, if the Payment on Account is realistic, why not pay it in January as you should already have made 3/4 of your business profits for the year by then anyway.

However, do you know that you can apply to have the Payments on Account reduced to a lower level if you think that your profits for the following tax year are going to be lower? The Payments on Account can be reduced to any level - including Nil.

HMRC thinks you should have a fair idea of your 2016/17 profits now, so you should be in a position to know whether you can realistically reduce the Payments on Account.

Did your accountant not tell you this?

[Eric Mc]

After 20 years I'm still surprised to find people who aren't aware that the Payments on Account can be reduced.

[Eric Mc]

fblm said:

Eric Mc said:

After 20 years I'm still surprised to find people who aren't aware that the Payments on Account can be reduced.

Presumably you have to claim you're expecting a lower income though?

There has to be a valid reason as to why you think the payments should be reduced. Lower business profits is one of them. It could also be that you had ceased trading or the source of income (such as a buy to let) was no longer generating profit for you.

[Eric Mc]

Under self assessment, you have to instruct HMRC to collect underpaid tax through a tax code adjustment. If HMRC do this automatically, they are in the wrong.

[Eric Mc]

Just a heads up.

On Wednesday 2 February, BBC Radio 4's Money Box Live will cover the topic of Making Tax Digital.

It will be broadcast at 3.00 pm and will be on the iPlayer afterwards.

Money Box today (Saturday 28 January) also devoted about ten minutes to it. This should be on the iPlayer as well within an hour or so if anybody wants to hear what was said.

[Eric Mc]

PurpleMoonlight said:

ninja-lewis said:

You have to make 2 payments on account every year unless:

• your last Self Assessment tax bill was less than £1,000
• you’ve already paid more than 80% of all the tax you owe, for example through your tax code or because your bank has already deducted interest on your savings

Ta.

I guess I had better budget for £3000 next January then.

There have been significant tax rule changes starting on 6 April 2016.

Banks no longer deduct tax on interest.

Dividends now attract tax at 7.5% once your dividend income exceeds £5,000.

For that reason, the Payments on Account created by your 2015/16 tax liability will not be a good indicator of the 2016/17 liability - even if your income for 2015/16 and 2016/17 are identical.

Just be aware that some people will have a fairly high bill to pay on 31 January 2018 as a result.

[Eric Mc]

JagLover said:

anonymous said:

[redacted]

This is a very fair point and will help those very worried about this to keep a sense of proportion.

The majority of my clients use sage and, as long as the invoices have been input correctly and bank movements likewise, to produce an accurate VAT return will indeed be a click of the button and to produce any additional information required may also be as similarly straightforward particularly if these quarterly returns are on a cash basis.

Let us not forget that Companies have a legal requirement to maintain adequate accounting records. Many older methods of maintaining accounts, including manual cashbooks, may indeed meet that requirement but are not particularly efficient. The switch may be painful but a few years down the line total time will be just the same or less and you will then be using accounting software fit for the 21st century.

My main concern for more sophisticated businesses is that the claims and allowances that are based on the annual accounts and tax review will still need to be made annually.
As a result, a business may have to spend an inordinate amount of time rejigging what they have already submitted under the quarterly returns in order to reverse some claims they made automatically and now realise were not valid or would be wasteful. You can't make capital allowance or loss relief claims quarterly, for example. Indeed, you wouldn't want to because you need to review the situation at the end of the year to be sure what allowances you want to claim. You don't want to waste them in error.

As it stands, HMRC are NOT amending the underlying tax rules so many of these claims will still be based on annual submissions - so the REALLY important tax decisions will still have to be made annually.

And when it comes to simple traders engaging in complex situations - which happens all the time, especially if acquiring plant and machinery through finance deals, my hunch is that an awful lot of the quarterly data submitted in those circumstances will be hopelessly wrong.


And don't forget, although the whole concept was launched on the basis that the annual return would be abolished, we now know that is not the case. An annual return will still be required on top of the four (or eight etc - depending on the circumstances ) returns that the individual will already have made.

Frankly, I am at a real loss as to what meaningful data HMRC will get under this system over and above what they get already.

Following the submission of the Consultation Document returns to HMRC on 7 November, we were promised a statement by HMRC for December. That never happened.

They then said they would make a statement in early January. That never happened either.
They then said by the end of January. Well, we haven't had it yet and there are only two working days left in January. The fact that they have delayed so long in announcing their views on the consultation document submissions does lead me to believe something is afoot at the Treasury.

[Eric Mc]

Hmm - this is getting interesting.

HMRC has just released this report - which was compiled and printed one year ago but has only now been released. This is NOT the report on Making Tax Digital I was talking about above. This is a separate report they commissioned into how the general public felt about interacting with HMRC using on line facilities.

On the whole, it states that the public were not confident in or convinced by HMRC's wishes to "go digital".

The question I have is, why did HMRC sit on this report for a whole year before publishing it?

https://www.gov.uk/government/uploads/system/uploa...

[Eric Mc]

I have no doubt this is going to happen at some point in the future.

But having a system that can handle all the data accurately for 40 million taxpayers up and running and fully functioning on 1 April 2018 is overly optimistic

[Eric Mc]

PurpleMoonlight said:

Eric Mc said:

I have no doubt this is going to happen at some point in the future.

But having a system that can handle all the data accurately for 40 million taxpayers up and running and fully functioning on 1 April 2018 is overly optimistic

I thought it was just the self employed were having to do this.

As Beano says, EVERY tax payer will have digital tax account - which they will have to monitor and ensure is fully up to date and correct at all times. There will be penalties for not doing so.

The additional burden of the quarterly updates falls on -

the self employed
partnerships
partners in partnerships
some charities
limited companies (eventually)
landlords of buy to lets
owners of holiday lets

For those who operate a number of these (which is not altogether uncommon) they will have to submit separate quarterly updates for each class. So a self employed landlord will have eight separate updates. If he also receives a share of partnership profits, that would be twelve submissions.

Within nine months of the end of the tax year, an annual reconciliation submission must also be made. HMRC has not clarified whether one annual submission covering all the quarterly updates is required ( i.e. effectively an annual Self Assessment tax return) or whether separate annual submissions will be required for each source of income.

If the latter, some people will be submitting upwards of 24 updates to HMRC each year (over and above Corporation Tax returns, VAT returns and PAYE subissions in some cases).

[Eric Mc]

Please don't let the thread descend into an argument on the pros and cons of paying tax. This thread is specifically about the new Making Tax Digital system.

There have been umpteen threads in the past on the general debate on the rights and wrongs of tax.Search for one of those and discuss that topic there.

I want to keep this thread focused on the specific provisions and impact of Making Tax Digital.