August, usually the quiet month for politics and policy, proved to be a very busy one for HMRC. They published a total of seven major documents consulting on many aspects of the Making Tax Digital strategy (MTD).
Crunch has long been working closely with HMRC on the digital tax agenda and we’re delighted to be involved in the private betas for the new MTD technology. We’ve also been participating in policy discussions and UX workshops with HMRC and others. In our unique position as a software developer, online accountant and agent for our 9,000 micro-business clients, we’re keen to ensure everything we’ve learnt feeds into MTD’s success.
Unfortunately quite a bit of the reporting on MTD so far has been misleading and scaremongering. Trying to pain MTD as ‘quarterly tax returns’ has been particularly unfair when the aim of the programme is to eliminate the whole concept of a big, difficult end of year return.
The reality is that by using software to manage your business finances it will be much easier and quicker to know your tax position and do business with HMRC. HMRC’s intention is also to make greater use of information it already holds in other workstreams, such as from banks and pension providers, thereby reducing the burden of requests on individual taxpayers.
Those claiming HMRC plans a new penalty system or ways of paying your tax are somewhat over-egging the pudding. HMRC is consulting on options, and we welcome those ideas being explored, but changes will require ministerial and even Parliamentary approval before happening, so they are a way off, if they ever happen. We won’t know for some time as much is still up for debate and the consultations don’t even close until 7th November.
Here’s what we do know for sure:
- Digital record-keeping will be required. From 2018 most businesses, sole traders and landlords will need to start using software to keep records and update HMRC quarterly, or more often if they wish.
- HMRC won’t be offering software. By 2020 HMRC will not provide any interface or software for filing tax updates. Third party software will be a requirement and HMRC is ensuring free options will be available.
- Those below £10,000 won’t have to switch. Those with an income below £10,000 will not be required to use the new MTD system. A transitionary approach is proposed for businesses just above £10,000 but what thresholds will be used has not been declared.
Crunch clients will be way ahead of the curve on all these changes as they are already doing their business accounting digitally and we will plug into the the new MTD features as they go live, just as we have done for digital VAT returns and the RTI PAYE updates to HMRC. We will continue working with HMRC as MTD proceeds and will share our full consultation response when it’s complete. Let us know what you think in the comments or @TeamCrunch.