HM Revenue and Customs (HMRC) has confirmed plans to beta test its Making Tax Digital (MTD) reporting system in April, with up to 100 testers due to be selected for an initial pilot ahead of a more significant trial in the autumn.
About 400,000 UK taxpayers – from landlords and the self-employed community through to sole traders are expected to pilot HMRC quarterly tax reporting system by October.
With such a tight deadline this autumn, it means there is a very small window for processes and UX issues to be ironed out following pilot tests. The tax authority’s desire to quickly implement MTD means it is very important that individual taxpayers and unincorporated business owners and buy-to-let landlords get up to speed with the suggested reporting requirements before they become mandatory from April 2018.
HMRC has revealed it will allow taxpayers to upload tax reporting data via spreadsheets. However, these will be required to be submitted through a third-party software tool to guarantee that the data can be processed into HMRC’s new system.
HMRC is already in negotiation with a number of software developers regarding the next steps for MTD. It is anticipated that at least three commercial software providers will agree to offer free entry-level software to ease the transition of MTD reporting.
The elephant in the room for many small businesses and self-employed professionals is HMRC’s minimum threshold for MTD reporting. The tax authority’s initial proposals were set at £10,000 a year. During the recent announcement, HMRC has notified that MTD reporting will be applicable to large businesses/landlords with the VAT threshold of £83,000 per annum starting April 2018 and for the all businesses/landlords with the VAT threshold of £10,000 per annum a year later.
This announcement seem to be the result of MTD consultations among stakeholders and taxpayers who have been somewhat scathing of the low-level threshold. The Chartered Institute of Taxation (CIOT), Institute of Chartered Accountants in England and Wales (ICAEW) and the Association of Chartered Certified Accountants (ACCA) suggested the threshold should be raised significantly to £83,000, in line with the current UK VAT threshold.
The HMRC’s original plan is to phase this in by starting with Income Tax from April 2018 then VAT from April 2019 and finally Corporation Tax from April 2020.