In his 2017 Spring Budget, the Chancellor finally shed light on HMRC’s Making Tax Digital for Business (MTDfB) schedule. In his speech Philip Hammond signposted that businesses under the VAT threshold would not need to embark on the quarterly reporting programme till April 2019.
Here at BTCSoftware, we welcomed news of the delay for smaller businesses, although larger ones will still be moving over to the MTDfB programme from April 2018.
Over recent months we’ve been working with HMRC to road-test some of the APIs needed to make the technology for MTDfB fully functional. APIs are the functions and procedures which enable different systems to talk and integrate with each other. During that time it’s become clear that HMRC were have a significant volume of APIs to test.
How the MTDfB schedule’s looking
Looking into the detail of the Making Tax Digital For Business publication published to coincide with the Budget, there has been some attempt to clarify when different types of businesses will need to comply.
The publication indicates that businesses, self-employed people and landlords will be required to start using the new digital service from these dates:
- April 2018, if they have profits chargeable to Income Tax and pay Class 4 National Insurance contributions (NICs) and their turnovers are in excess of the VAT threshold
- April 2019, if they have profits chargeable to Income Tax and pay Class 4 NICs and their turnovers are below the VAT threshold
- April 2019, if they are registered for and pay VAT
- from April 2020, if they pay Corporation Tax (CT)
Category 3 in this list needs further clarification because it seems to imply any business who is registered for and pays VAT will be included in MTDfB from April 2019. Does this mean businesses who pay Corporation Tax too or do they all wait until 2020? It seems that the last two categories could be taken to mean different things by different people.
The rollout timetable is still ambitious, as HMRC’s digital team have to deliver numerous fundamental APIs for software developers to road-test before MTDfB can become a reality. A key one is for the two-step agent verification. It’s already a year overdue but has been promised for May 2017.
We are working closely with HMRC so the minute they release an API we immediately set to writing, testing and blending them seamlessly into our tax and accounting software. This ensures that our solutions are MTDfB compliant as the HMRC’s new digital tax systems evolve.
MTDfB’s impact on businesses
The Government paper also tries to calculate the impact on businesses when complying with the new MTDfB regime. They are, however, at pains to caveat their calculations with the following statement:
“This means that the final estimate of the savings and costs to business could be different from the estimate presented here.”
In one part of the document they argue that businesses will save on agents’ fees by being more self-sufficient in managing their accounts and submissions digitally. We’ve always questioned this belief as few businesses have the capability and experience to apply complex UK tax legislation correctly to their organisation. Many, rightly, turn to tax and accounting specialists to help them interpret and comply correctly with the latest accounting and tax regulations.
Further on in their document the Government seems to have had a rethink on this, as one of the costs it anticipates businesses likely to have to cover are ‘additional accountancy/agents costs.’
Much has been written about the potential financial costs of MTDfB to businesses and the Government has muted £280 per business. In addition to the day to day running of their businesses, business owners have had to apply numerous additional compliance initiatives in recent years (for example Real Time Information and Auto Enrolment). MTDfB will require additional time and effort. If time and other resources are limited in their organisation then outsourcing their MTDfB compliance to agents will be something businesses owners have to invest in.
We don’t think agents will become obsolete with MTDfB, far from it. Given the additional burden MTDfB places on them, businesses will probably rely on their agents more than ever. We also think the financial impact to businesses (when you factor in the cost of time and getting specialist help) will be significantly higher than the Government’s estimates.
Free software is still unlikely
The Government’s MTDfB March 2017 paper repeatedly references free software being available to make MTDfB a reality, but we know HMRC has no plans to develop this themselves. Instead HMRC is focused on making its systems integrate with third party software. Software providers are commercial businesses and will require a revenue stream like all businesses in order to operate. We cannot see software providers offering free software. In fact we’ve heard of some digital bookkeeping providers deliberately not getting involved in MTDfB because it would cause them to diversify into tax return compliance.
It’s clear that, in the long-run, HMRC sees MTDfB compliance removing the requirement for the Self-Assessment annual return. They hinted it at recently with an offer that businesses who sign up to the MTDfB pilot won’t need to complete a 2017/18 annual return.
We wondered if another sweetener is afoot, as we noted in the Government paper the promise that:
“Individual partners in partnerships will no longer have to separately provide HMRC with details of their share of the profits or losses from the partnership.”
It’s not clear to us how this would work as, certainly in our road-testing and work with HMRC, we’ve had no warning of this. So we guess it’s a case of ‘watch this space’ although it doesn’t give much time to adjust and develop the necessary technologies, as the first tranche of partnerships will start on their mandatory MTDfB journey from April 2018.
Whilst it’s good to hear the Government has listened to recent concerns about the proposed timetable for MTDfB’s rollout, the timetable is still very ambitious given the sheer volume of APIs that need to be rolled out and tested with third party software developers.
Businesses including the self-employed and landlords with turnovers in excess of the VAT threshold will start to file quarterly from April 2018. In fact legislation needed to make MTDfB happen will be introduced in the Finance Bill 2017.
When you factor in that:
- the technology is still not fully defined and therefore not fully developed,
- the education process needed to enable those businesses to have a chance to comply hasn’t started. and
- the Government recommended in its March 2017 MTDfB paper that ‘HMRC will need to develop a customer support model for businesses that need help with the transition’
…you wonder if even more time is in fact needed.
At BTCSoftware we will continue to work closely with HMRC’s digital team. We will continue to write, test and blend their APIs seamlessly into our tax and accounting software, the minute they are released. Change is definitely coming and we are committed to ensuring accountancy practices and businesses have BTCSoftware MTD compliant software when their big ‘switch on’ occurs.