A step to modernize the tax system was taken when the HMRC identified a tax gap of close of 8 billion between tax receivable and actual tax collected, owing to taxpayer errors. The roadmap to achieving this is the Making Tax Digital for Business (MTDfB) project.
In 2015, the costing certified by OBR (Office for Budget Responsibility) estimated that MTDfB would contribute £945 million to the Exchequer by 2020 to 2021. But based on the recent tax gap estimates, information of receipts and including an extra year, HMRC expects MTDfB would contribute £2 billion to the Exchequer by 2021 to 2022.
In August 2016, HMRC issued six consultation documents to businesses and agents, and have now released their responses to these documents. This has been published alongside the draft legislation of the Making Tax Digital Project where HMRC has taken into account over 3000 responses received, from the very nascent stages of the project. Considering the details of the responses in-depth, HMRC confirms the following points under MTD.
– Businesses can still use spreadsheets for recording receipts and expenses, which can be linked to the software and sent to HMRC
– Smallest businesses will have free software available.
– Businesses incapable of digitizing will not be required to do so.
– Self-employed businesses and landlords, whose turn is under £10,000 have been given an exemption to record digitally or make quarterly updates.
– Unincorporated landlords and an extra 2.5 million self-employed businesses have an advantage because accounting based on simple “cash in, cash out” will be extended.
– Charities will not have to keep their records digitally or make quarterly updates
– Customers will have at least 12 months to become familiar with the changes before any late submission penalties will be applied; following feedback from respondents, HMRC will also consult again in the spring on a new penalty model
– HMRC will pilot these digital systems with hundreds of thousands of businesses before rolling them out to ensure the software is user-friendly, and to give businesses and landlords time to prepare and adapt
HMRC promises to continue working closely with stakeholders, including small businesses and agents, to ensure their views are reflected in the development of making tax digital.
DataTracks role towards MTD:
As part of doing our bit to support HMRC’s MTD program, DataTracks would be ready with services and solutions to meet all MTD requirements as and when the mandate kicks in from HMRC.
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