Digital tax accounts delayed for contractors

A requirement for tiny companies to report tax online ‘at least quarterly’ as part of Making Tax Digital has been put back, in a surprise government announcement on Finance Bill 2017.

Speaking on Friday, the Treasury said that changes to tax legislation which were dropped from the bill will still go ahead, other than the 2018 start of MTD for micro-companies.

“Businesses will not be mandated to use the MTD system until April 2019 and then only to meet VAT obligations,” said the Treasury, describing the delay as a ‘policy change.’

“This will apply to businesses with turnover above the VAT threshold. Businesses with turnover below the VAT threshold will not be required to use the system but can choose to”.

In other words, only business owners with a turnover of more than £85,000 will need to keep digital records, and only for VAT, from 2019.

As to the Treasury’s line about choosing it, it likely means that traders will not be invited to jump to MTD and adopt quarterly tax reporting for other taxes until at least mid-2020.

The official statement confirms: “The government will not widen the scope of MTD beyond VAT before the system has been shown to work well, and not before April 2020”.

Tax advisory RSM welcomed the MTD’s new timetable, which it said was effectively replacing the previous “unrealistic” one (forcing all one-man bands to use it from 2018).

“In the end, HMRC had little choice to postpone… [partly due to] the genuine alarm being expressed by affected businesses,” it said. “The MTD initiative was simply one project too far.”

But that doesn’t mean that ‘at least’ quarterly tax reporting online is wrong in principle, according to RSM tax consultant Andrew Hubbard.

“We remain of the view that the core philosophy underlying MTD is the right one to pursue, and that eventually taxpayers, agents and HMRC will see the benefit of digital interaction with the tax system.

“If the system is as effective as we all hope, individuals and businesses will not need compulsion but will want to adopt it.”

However, the Treasury’s decision to delay the MTD start date for small businesses gives the taxman some “much needed time to concentrate on building the system successfully.”

“And to make it so attractive that businesses will actively want to sign up,” Hubbard added. “For now though, businesses will have a choice as to the timing. As a result, there will be a lot of accountants and small business owners who will today be breathing a huge sigh of relief.”

The new timetable for MTD means:

  • A pilot for the VAT aspect of MTD for small companies will begin at the end of 2017.
  • An extension of this VAT-specific pilot will be widened in the Spring of 2018.
  • Only companies with turnover above £85,000 will be required to keep digital records for VAT, from 2019.
  • Mandatory MTD will be delayed until 2020.

Editor’s Note: Related –

MTD forces parties to flirt with tax policies

Making Tax Digital ‘to cost £2,800 per business’

Making Tax Digital delay ‘does not go far enough

Jul 17, 2017