Making tax digital: September 2016 update

Following several months of anticipation, HMRC has produced a suite of six consultations on Making Tax Digital

As you will have seen, following several months of anticipation, HMRC has finally launched its opening Making Tax Digital (MTD) salvo.

The six consultations making up the suite are:

HMRC’s position is clear in the consultations and is illustrated by the statement: 'We believe that the full benefits of digital capability can only be delivered for all parties by mandating the use of digital record keeping software that links to and updates business’s digital accounts with HMRC.'

Clearly, HMRC's view is that businesses must record business information in the form HMRC requires and that it must be sent to HMRC each quarter. Failure will result in a penalty.

HMRC also makes it clear in paragraph 8.15 of Bringing business tax into the digital age that user testing is already due to take place in the second half of 2016 and throughout 2017! 

It is still important, though, to make sure your voice is heard and we would encourage you to comment on the merits of MTD and consider some of the key questions in the consultation document.

What to look at?

A lot of time is spent restating that HMRC thinks MTD is a great idea; that it thinks the changes proposed will benefit businesses; that it thinks that information submitted to HMRC in this way is not a 'return'; and highlighting that it has listened to comments and have made improvements to MTD...

You can save quite a bit of time by not looking at the case studies and spotting the basic business advice that would help these fictional characters run better businesses. But they are all, according to the consultations, very happy with HMRC.

You may prefer to look at the following areas within the consultations, on which we would invite your comments and where we would be grateful for your business insight and expertise.

The timelines

These are highlighted throughout the consultations. The relevant dates are:

  • Income tax and national insurance: April 2018
  • VAT obligations: April 2019
  • Corporation tax obligations: April 2020

What is your view on the timelines as they will affect you, the businesses you represent, your software suppliers and HMRC?

You can see on pages 41 to 43 of Bringing business tax into the digital age, in the sub-section entitled 'Starting to update HMRC', the start date options for businesses' quarterly and ‘end-of-year’ activity supplies of information to HMRC.

On pages 35, in the section 'Providing HMRC with Updates', and 46, in the section '"End of Year" Activity', you can find the process for business information returns that HMRC is suggesting.

HMRC proposes that it will allow businesses to provide the quarterly in-year updates within one month following the end of the update cycle (for most, this is the end of the quarter).

It is highlighted on page 44 in the sub-section 'Amendments to records or previous updates' that HMRC wants to identify changes that occur for each update cycle.

The ‘end-of-year’ activity return will be supplied by businesses within nine months of their year end. HMRC states: 'We do not envisage that the activity required at End of Year will be greater than that which businesses currently undertake to complete their Self Assessment tax return.'

  • Is the one-month submission timeframe realistic?
  • Is the nine-month submission timeframe realistic?
  • What is your view of corrections made to returns needing to be reconciled?

Tax simplification

HMRC believes that MTD should take place before many tax rules are simplified. What is your view?


HMRC has indicated in the consultations that businesses will make savings. The estimates are £85m and £250m, highlighted in Bringing business tax into the digital age, in the section ‘Initial Assessment of Impacts’ starting on on page 59.

HMRC also highlights in this section that it does not have sufficient information to assess all one-off costs and ongoing costs. The business savings assessment undertaken by HMRC may therefore be questionable.

Obviously, with uncertainties around which tax rules will change, software availability, hardware requirements and how the system and its security will work, it is difficult for HMRC to estimate theses costs, but businesses and advisers are likely to be better placed to do so.

We would be grateful if you could provide your comments on the following:

  • What are the one-off costs/savings to your business?
  • What are the on-going costs/savings to your business?
  • What are the one-off costs/savings to businesses you advise?
  • What are the on-going costs/savings to businesses you advise?


The Tax administration consultation document highlights areas of complexity and difficulty but only relating to the penalty regime and not MTD as a whole.

It is stated in the document that HMRC's powers will need to fit in with ‘the way information will be provided in MTD. This will not mean any extension of powers’. HMRC highlights on page 7 the changes needed for MTD. The consultation goes on to highlight how the proposed points-based penalty system may work for each of the submissions that HMRC requires, and this is followed by a section on tax-geared penalties.

When considering the penalties it is useful to consider the principles that underpin any penalty regime and these can be found on page 11 in sub-section 3.2.

In sub-section 3.37 on page 19 it is made clear that HMRC does not want taxpayers to be given the right to appeal against points as they arise; they will only be able to appeal if a penalty is charged.

HMRC asks the following question on page 19: ‘Do you agree that points should only become appealable when they have caused a penalty to be charged?’

In your comments on this question, please also highlight whether this is appropriate for businesses or whether, as is proposed for other areas of the MTD consultations, you would prefer a real-time appeals process.


The criteria for exempting businesses are discussed in Bringing business tax into the digital age, beginning on page 51. It is clear that exemptions are not being encouraged. Those involved with charities, together with insolvency practitioners, may wish to comment on the proposals.

This section, ‘Exemptions’, is also where HMRC highlights the principles it is using to determine if an exemption is possible. These can be found on page 58 under ‘Principles for determining eligibility for an exemption’.

Do you have any comments on the criteria or the principles?

Overlap relief

In Simplifying tax for unincorporated businesses, under the section considering accounting periods, it is highlighted in section 3.35 that overlap relief will remain available on cessation.

Calculation of profits

In Simplifying tax for unincorporated businesses, on page 18, simplifications for stock adjustments, WIP and long-term contracts, bad debts and prepayments and accruals are explained. HMRC ask if other areas should be exempted. HMRC also, on pages 8 and 9, discusses what size of business should be allowed to adopt cash accounting.

Summary poll

Which of the following statements do you agree with?

MTD will:

  • Free management time and encourage businesses to look at new opportunities
  • Have no impact on management time
  • Take up management time and prevent businesses from looking at new opportunities

Please send your comments on any of the points raised above, or on questions contained in the consultations, together with any other of your thoughts on MTD, to with the subject line, 'Making Tax Digital'.

For more on the background to MTD, visit our previous page (February 2016).