The Making Tax Digital (MTD) proposals represent a significant and unprecedented change in the way that taxpayers will be expected to maintain their records and connect with HM Revenue & Customs (HMRC).
Distilled to its simplest form, unincorporated businesses, smaller companies and landlords will be required by 2020 to supply current financial information online to HMRC at least every three months. Additionally, it appears clear that such information will be used to accelerate tax payments by such businesses.
To comply, taxpayers have been told that they will be required to maintain their records in digital format. This could provide difficulties for smaller businesses attempting to convert within the ambitious MTD timetable. Indeed, this compulsion could be subject to legal challenge. In the recent VAT case LH Bishop Electrical Co Limited, the judge held that regulations requiring the online filing of VAT returns without exemptions (including people with disabilities or those with unreliable broadband access) represented a breach of human rights and was unlawful.
Additionally, there remains significant uncertainty about the form that the quarterly reporting will take. HMRC has stated that “Quarterly updates will largely be a matter of checking data generated from record-keeping software or app and clicking send” but such statements reflect an alarming gulf between HMRC’s perception of how businesses operate and what happens in the real world.
Taxpayer representatives have reacted with alarm at the prospect of MTD, concerned at the mandatory nature of the changes, the ambitious timetable and the likely increase to compliance costs to taxpayers that the reforms will bring.