HMRC launches Making Tax Digital pilot
HMRC has launched its Making Tax Digital for business pilot to test out its new reporting system, with a year to go before businesses with turnovers above the VAT threshold are required to switch to digital records and provide quarterly summary updates from April 2019
This month HMRC says it will invite ‘some’ businesses and their agents to sign up for a trial of reporting income and expenses online.
At different stages of the pilot they will be using accounting software to record their business income and expenses; sending summary reports of their income and expenses direct from their digital records quarterly or more often if they choose; and signing up to go paperless.
Based on the information they report, businesses will get an estimated tax calculation.
At this stage, HMRC has not stated specifically how many businesses will be involved in the pilot, although it says that ‘as soon as the new service has been tested with the first group of businesses and agents, other customers will be able to join the pilot. These customers will be able to report their income and expenses for the quarter they join as well as any previous quarters.’
HMRC’s testing for its new digital service has been heavily criticised, with a Treasury select committee report published in January suggesting such schemes needed to be ‘substantive and wide-ranging’, and saying that in previous pilots, businesses participated at HMRC’s invitation. The committee said it was concerned this invitation-only approach could undermine the value of information collected as businesses which could be adversely affected are more likely to decline.
In response, an HMRC spokesman said the programme would be piloted ‘with hundreds of thousands’ before being rolled out. In a letter sent to the committee in late March Jane Ellison, financial secretary to the Treasury, confirmed there will be a ‘large scale public pilot’.
An HMRC online agent blog published last month stated: ‘From April we’ll start our live pilot of the changes with businesses and agents. We’ll start with small numbers but aim to have hundreds of thousands of small businesses and their agents taking part.
‘We’d really appreciate your help in recruiting any of your clients who may be interested and fit the profile of the sort of business we are looking to help us initially. We’ll be saying more about this in the spring.’
HMRC says that business which are not invited to take part in the pilot at the beginning will not be able to start sending quarterly reports to HMRC immediately. However, it suggests they could start to use accounting software to keep their records if they do not do so already, checking that any software they use, including spreadsheets, is compatible with quarterly reporting
HMRC says it will publish a list of software suppliers who have developed compatible software and registered with them later in the year.
At Budget 2017, the Chancellor confirmed that businesses will be able to continue to use spreadsheets for record keeping but their software must be able to interact with those spreadsheets so that the requirements of digital reporting are met. Businesses eligible for three line accounts will be able to provide quarterly updates on that basis.
The deadline for the introduction of Making Tax Digital has been extended for businesses (including the self-employed and landlords) that have annual turnover below the VAT registration threshold. They will not need to keep records digitally and send HMRC quarterly updates until April 2019.
Those with annual turnover above the VAT threshold will still be required to keep digital records and send HMRC quarterly updates from April 2018. The exemption threshold, previously announced, will remain at £10,000.
HMRC policy paper Making Tax Digital for Business is here.
