Making Tax Digital: Bringing business tax into the digital age

Of the proposals included in the six Making Tax Digital (MTD) consultation documents it is probably the proposals in this consultation document that are the most contentious and may have the greatest impact on businesses, ie to mandate digital record keeping for businesses (that fall within its scope) and to provide quarterly updates to HMRC.  

In many instances the proposals appear to be more for the benefit of HMRC (for example the use of HMRC data fields) and at the expense of businesses that will have to meet the associated costs. However, AAT accepts that the decision to mandate digital record keeping and quarterly updating has been taken and therefore has focussed on the practicalities of implementing the measures outlined so as mitigate the adverse impacts this proposal could have on businesses and on ways to improve the effectiveness of the proposals.  

We recommend that:

• the implementation of MTD should start from April 2018 as originally intended but only for those businesses above the VAT registration threshold (currently £83,000). Other businesses should then be phased into scope over a three year period reducing the threshold to the personal allowance (currently £11,000) at the end of the three year period
• HMRC should allow a "soft landing" whereby no penalties will be imposed for a set period, such as the first two years
• there needs to be a sensible discussion about who is “unable to engage digitally” that respects fundamental human rights.  

AAT strongly recommends that HMRC should consider that a business keeping its business records on a spreadsheet is compliant with the requirement for "digital record keeping". These businesses could still be required to provide quarterly updates which could be done via their business tax account.  

General notes on the six Making Tax Digital consultations held in 2016

• AAT wholeheartedly supports the ambition to make our tax system the most digitally advanced tax system in the world. However, AAT is concerned about the timetable for implementation.  
• AAT is concerned about the costs MTD will place on businesses and taxpayers. A recent survey of AAT Licensed Accountants found that well over three quarters were concerned about software costs and time spent familiarising themselves with the new processes. Almost half are concerned about hardware costs and other as yet unknown costs. 
• It has been difficult to fully respond to each of the six MTD consultation documents given so much technical uncertainty remains. HMRC must delay implementation if significant technical difficulties arise rather than proceeding regardless. Proceeding under such circumstances risks both reputational damage and reduced compliance.