Rebecca Cave, an accountant, went to a meeting chaired by HRMC to find out more about what was involved in the new quarterly digital reporting. The following post is her report posted on the Accountingweb website. It's a long report but unless you are a member of that website you can't view the article so no point in posting just a link.
It is every bit as bad as what newpapers have been reporting, HMRC have made it clear that this is going to happen and have zero intention of backing down.
Replies sorted oldest to newest
Rebecca Cave's report
The move towards quarterly reporting has started, but there will be many known and unknown issues to be resolved along the way. A major unknown is whether quarterly tax payments will follow on from quarterly reporting. This matter has not been decided either way by government ministers, or so we were told by HMRC.
The purpose of these early Making Tax Digital events appears to be to educate advisers about quarterly reporting, and to test reactions to the idea of quarterly payments. It was emphasised that quarterly reporting is not about securing a cash flow advantage for the government [much laughter from the audience]. The purpose of quarterly reporting is to modernise the tax administration system and to encourage taxpayers to interact with HMRC on a more current basis.
A further more formal consultation on Making Tax Digital will follow from April 2016 onwards, which will consist of series of events held around the country. HMRC wants to reach out to smaller businesses and their advisers in those events.
All businesses will be required to report at least quarterly to HMRC, this is not up for negotiation. Individuals with secondary sources of income (non-PAYE) of £10,000 or more will also be within scope of quarterly reporting. When questioned on how this £10,000 was arrived at, the answer appeared to be “taxable income”. So a landlord with rental income of £1,000 per month gross, and interest payments of £500, will be brought into quarterly reporting as the interest will not be tax deductible, as the their taxable secondary income will be £12,000 per year from 2020.
The timetable for bringing taxpayers into quarterly reporting is expected to be:
For accounting periods or tax years starting after: | Type of business: |
5 April 2018 | Businesses under VAT registration threshold and individuals with secondary income of more than £10,000 |
5 April 2019 | VAT registered businesses |
1 April 2020 | Companies |
This approach; starting with the smallest and least sophisticated businesses, was challenged by the accountants present as being the wrong way round. HMRC was urged to start quarterly reporting for businesses which have the greatest capability to cope i.e. large companies with in-house tax departments.
What type of data will be reported quarterly: A summary of receipts and payments or the detail of every single business transaction? – HMRC doesn’t know; as no decision has been made. This response calls into question how HMRC can be negotiating with software providers (see below) as this fundamental point has not been decided.
HMRC believes that businesses won’t have to hire tax professional to do quarterly updates. This implies that all business data items will be submitted (every invoice issued and receipt for expenses), with no analysis of whether the items submitted are tax deductible or not. The HMRC mantra is: “reporting to HMRC closer to real time will reduce errors”. Exactly how more frequent reporting will reduce errors was not demonstrated.
Every business will have access to an HMRC digital tax account from April 2016. Tax agents will be able to manage their clients’ digital accounts. Work to give tax agents access to those accounts is being synchronised with Agent Online Self-Serve (AOSS).
At present AOSS is being piloted with tax agents who have no more than 200 clients. HMRC could not say when AOSS will be available to all tax agents, as currently that programme appears to be running behind its predicted schedule.
It was not clear when tax agents will be given access to clients’ digital tax accounts, or even that all tax agents would be given access from the same date. The accountants asked for access to clients’ digital tax accounts from April 2017, when the first businesses are expected to start trailing quarterly reporting.
HMRC is consulting with commercial software providers to provide free software for smaller businesses and for those with less complex tax affairs. There is no definition of “smaller” or “less complex” in this context as yet.
The HMRC vision is that the software will flag-up data items which are potentially wrong and HMRC will send a personalised message to taxpayer as guidance.
Ona accountant asked: What research has HMRC had done as to the types of software already used to record business transactions? It was emphasised that many businesses used spreadsheets, or bespoke software, as there is no commercial software available for their particular form of business, e.g. financial advisers.
Will penalties be imposed for late quarterly reporting or for inaccurate reports, or both?
HMRC doesn’t know the answer to this, other than; “there will be a light touch approach.”
Will the flat rate scheme for small businesses be abolished, and if not, how will it tie into quarterly reporting? – No decision has been made on this.
The consultation paper on simpler payments promised that tax repayments would be obtained quicker. This implied that off-sets of tax owning and tax deducted such as CIS tax would be made. As CIS repayments are currently delayed for months due to security issues, how are those issues going to be over-come? HMRC had no answer on this.
HMRC acknowledged that Making Tax Digital will be as fundamental an alteration to tax administration as the change to self assessment. For those of us who worked through the move to SA, which also involved a change from the prior year basis to current year basis for the self-employed, the move to digital tax accounts and quarterly reporting appears to be indecently rushed.
If you have comments about the Making Tax Digital programme you can send them to HMRC on this address: makingtaxdigital.mailbox@hmrc.gsi.gov.uk.
The concerns I have about this are:
A bit over 2 years for implementation of a very complex IT system is ridiculously optimistic. Just look at the Universal Credit system. that was outlined in 2010, launched in 2013, and because of all the technical problems as of last September just 175,000 people have made claims through that system. The UK tax system is the most complex tax system in the world.
A substantial proportion of those who will be required to file the quarterly data will be struggling. The government says support will be provided for some but in reality support will need to be provided on a much larger scale. The software may be free but will the support? And will the support set up be able to cope with quite possibly a million people needing help?
For those who think that their agents will be able to do the work for them, will they be prepared to pay the substantial increase in fees charged by agents? And will agents be able to cope with a substantial increase in their workload nearing in mind that the data is having to be submitted quarterly rather than annually and presumably within something like 30 days of the end of each quarter rather than nearly 10 months as at present?
Then there's the matter of what is actually being sent to HMRC. It's starting to look as if it's details of every single sale and expense. That way the HMRC's computers would go through every single item and say which expenses won't be allowed for tax. I would think that the HMRC computers would work on the basis that if there's any way in which some expense can be disallowed it will be. Most businesses are likely to find that expenses are being disallowed on a much bigger basis than at present.
And I have concern over the attitude of HMRC and the government about this. HMRC have made it clear they will not back down. The proposals will be implemented no matter what the consequences are to the economy. The consulations won't be about should the proposals go ahead but will be what sanctions will be imposed on people who don't comply. (that's not mentioned above but was included in the government's reponse to the petition which was made for a rethink).
Also not mentioned above is that agents will not have access to their clients digital accounts other than through the AOSS mentioned above. HMRC have said that any agent who attempts to access a client's digital account will be regarded as a serious offence.
A late thank you for passing on that info El Loro!
I'll have a look in the morning whilst waiting at the dentist!
The Boss and I had a discussion about this and we came to the conclusion that our accountant who must be seventy at least will probably call it a day.
We'll just have to see how it pans out.
Sometimes I look at all the publicity about Brexit and feel that the GP are missing some of the more important subjects. Tax avoidance and Tax evasion, mate's rates for bigger boys, and TTIP. Those I've missed you'll surely pardon.
I imagine it will roll out as smoothly as RTI did for PAYE. *HUGE EYE ROLL*
Cinds posted:I imagine it will roll out as smoothly as RTI did for PAYE. *HUGE EYE ROLL*
I think the chances of it rolling out smoothly are less than winning the jackpot on the national lottery 10 times in a row. It will be a thousand times more problematic than RTI which was simple in comparison.
In the example shown above in the Who will report? section it says that interest will not be allowable against rental income.
I don't know why that's the case as interest is allowable at present. I think it's to do with the change from April 2017 in the way that interest is claimable by landlords. Over a period of 4 years, the amount of tax relief will be reduced from the landlord's top rate of tax down to the basic rate of 20%. the tax relief will be given as a deduction from their tax bill rather than the interest being deducted from the rental income.
