Following HMRCs initial announcement on MTD and after months of speculation and discussion, HMRC has published the outcome of its Making Tax Digital (MTD) consultation and draft legislation ready for the Finance Bill 2017.
The purpose of this initiative from the HMRC is to help businesses get their tax right first time and ‘Making Tax Digital’ for UK tax payers will bring the tax system into line with what businesses and individuals now expect from service providers: a modern digital experience. New technology is continually transforming the way people and businesses communicate, log information, shop, bank, travel and trade. The appetite for digital services is strong, and relying on a predominantly paper-based tax system makes no sense in the 21st century.
However, I know that adoption of such changes will be different for us all, so it was comforting to read that there is no question of forcing those who cannot go digital to do so. HMRC are looking to ensure that there are alternatives for those who genuinely need them, and help will continue to be available for businesses who want help and support as they ‘go digital’.
For business, the reality is that there may be some short term cost. The HMRC impact assessment for MTD suggests the changes will result in an initial cost of £280 for each UK business. HMRC are vague on the detail of this calculation, but we’re assuming this will be a combination of the costs for accountant advice and technology services which businesses will need to adopt in order to send the financial data HMRC will now expect. However, we feel the technology cost is quite high when you look at the variety of software providers out there such as Reckon One which is available on a subscription basis at just £3 per month. HMRC have stated that although there will be an initial cost there will be an unspecified amount of ongoing savings so likely in the long term these changes will more than benefit businesses.
It is pleasing to know that HMRC is using MTD as an opportunity to help and support small businesses. The cash accounting threshold is to be increased and some rules relating to expenditure simplified. I see this as an opportunity for more small businesses to consider the scheme. Clearly an accountant’s advice and guidance is crucial when considering such changes, and an accounting application like Reckon One can really help, as switching between accrual and cash accounting is a doddle, so understanding the impact becomes much easier.
I find it interesting that HMRC state that landlords / small property businesses (with up to £150k turnover) in particular could benefit from the change to cash accounting rules. Whilst this is another area where HMRC are light on the specific detail, it is believed that there are 2.36m such eligible businesses in the UK, and up to 1.8m of these could benefit from the cash accounting rule changes. Great for this business sector if it helps reduce ‘red tape’.
Whilst I’m positive in nature, I do query a key driver for these changes. HMRC state that a goal of MTD is to reduce the quoted £8b cost to the public purse of collecting tax. Whilst I support the changes in terms of modernisation, digitisation and allowing leading edge tech firms to work better with HMRC systems, the cynic in me wonders if we will ever see significant cost savings for the public – at least directly. Only time will tell on whether this goal is achieved.
So in my opinion the changes now proposed for MTD will allow HMRC to deliver us all a more modern digital experience. Reckon and other similar biz tech firms have done much to change how businesses use technology in recent years and I welcome HMRC also coming to join the party.
Rest assured that we’re doing all we can to support our customers, accountants, SMEs and HMRC through the changes.
Author: Jon Martingale
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