Posted by Gary Mackley-Smith on July 13, 2017
In a shock move the government has announced that a major project to digitalise the tax system for businesses is to be suspended indefinitely.
Making Tax Digital (MTD) for business was meant to commence in April 2018 for unincorporated businesses and landlords with a turnover above £85,000 (the current VAT threshold), with smaller firms joining in 2019 and companies in 2020.
However, the General Election earlier this year scuppered the Finance Bill clauses for MTD as they had to be dropped due to lack of Parliamentary time.
The government has now announced that under a revised timetable only businesses with a turnover above £85,000 will need to keep their records digitally and only for VAT purposes, and this will apply from April 2019.
Businesses will not be required to keep digital records or file quarterly returns to the tax office for income tax or corporation tax until at least 2020. A pilot scheme will continue in the meantime.
The government has further confirmed that MTD will be voluntary for the smallest businesses and landlords.
MTD was to be one of the biggest changes in the tax system for over 20 years, since the introduction of self-assessment. It has now been kicked into the long grass whilst the government focusses on its Brexit-heavy Parliamentary agenda.
Provided the current minority government can survive, the next General Election under the Fixed Term Parliament Act will be in 2022, so it would appear unlikely that MTD will be Mandatory before then. And it will be down to a new government to decide if it goes ahead and in what form.
It is also understood that since the IR35 rules were changed in April of this year, forcing IT contractors working through their own companies onto the payroll of public sector bodies, HM Revenue & Customs has lost a significant number of its freelance computer programmers who were working on the infrastructure for the digital project.
The delay in the start of MTD will be welcomed by business groups who have campaigned for more time. The April 2018 starting date was looking increasingly fragile, and the government now appears to have accepted that the push for tax digitalisation was too rushed.
Finance Bill (No.2) 2017, to be published after Parliament’s summer recess, will include draft legislation for the MTD programme.
If you would like to discuss the implications of the delay in MTD for your business, please contact your usual Bishop Fleming adviser.
The House of Commons Library has published a briefing paper on MTD covering its background since the 2015 Budget and recent changes to the timetable.
MTD is meant to drive businesses towards keeping their accounts in a digital form. And although the timetable for the project has been delayed for some years (at least for personal and corporate taxes), the commercial advantages of moving towards a cloud-based accounting system have not changed. The direction of travel for most businesses is to keep financial records in some kind of software or app, allowing them to keep a real-time focus on costs and sales, with automatic links to bank accounts to save manual entries having to be made, and the ability to check margins and revise strategies quickly whilst on the move. Bishop Fleming’s Accounting Solutions team are available to help with this.