HMRC has published its responses to its six consultations on Making Tax Digital (MTD). They underestimate the real impact costs of making the self employed and landlords file five tax returns per year.

Background and more detail

  • Under MTD individual self employed traders and landlords must file five tax returns per year,.
  • They must all use software for bookkeeping under the new system.

This is represents a massive change, a huge cost to business and the UK's economy. HMRC's Tax Assurance Commissioner Jim Harra even admits* that this brings no cost savings to HMRC either.

Following consultation HMRC has toned down its requirements for reporting (slightly): the self employed may use spreadsheets and need only report three line accounts.

The extra reporting burden of four more tax returns per year remains.

These measures are heavily criticised by all the leading tax and accounting bodies, tax and accounting professionals. Recently MPs from both the House of Commons Treasury and Public Accounts committees have both suggested that HMRC's proposed compliance requirement is over ambitious. In short, software and Apps will still require a substantial amount of user time and energy and some 20% of taxpayers are not able to engage with HMRC online partly due to lack of technology and partly due to lack of IT skills.

HMRC’s main argument for additional quarterly reporting is that it will simplify reporting and that it is quicker to do your bookkeeping on the move.

All accountants and bookkeepers know that this is nonsense. Filing five returns a year instead of four is not ‘simpler’ and it is quicker to enter 365 receipts in one batch than to enter one receipt in 365 batches. Most companies do not do their bookkeeping daily and so why expect a self employed individual to do so?

The Treasury Select committee suggested that HMRC run a long-term pilot scheme for quarterly reporting, and HMRC has agreed. That is unnecessary with a simplified reporting scheme as outlined above. Many of us all file our VAT returns online and we know that system works well.

HMRC have also confirmed that taxpayers will be given at least 12 months before they are charged any late submission penalties.

Penalties for error in a return or document under schedule 24 FA 2007 will continue to apply. They will apply to each of the five returns made per year under MTD.

There will also be another consultation paper dealing with penalties under MTD, to be released “later in 2017”.

We will keep you updated.