HMRC published a consultation that considered how digital record keeping and regular updates should operate. The proposals allowed tax to be integrated into day to day business activity and enable businesses to provide a single update for multiple taxes, while offering maximum flexibility – for example as to when a business makes accounting adjustments or claims for allowances and reliefs – so that tax requirements fit in with existing business practices.

This consultation has now closed, and CTG has responded.

The changes announced in this and related consultations to ease the transition to digital include:

• Exempting more of the smallest unincorporated businesses from the requirement to keep digital records and make regular updates to HMRC. No unincorporated business or landlord with a turnover or gross income from property under £10,000 per annum will have to do this.
• Deferring the mandatory start of MTD by one year for the next tier of small unincorporated businesses and landlords with annual incomes of above £10,000 but below a threshold to be determined. This will give these businesses extra time to get used to the new requirements.
• Consulting on exemptions for charities, Community Amateur Sports Clubs and inviting proposals for exemptions for other groups.
• Consulting on a new points-based penalty system that applies financial penalties only after several failures, relaxing the treatment of one-off errors.
• Allowing more businesses to account for tax based on cash in and cash out, greatly simplifying the accounting they will do in MTD.

Summary of key questions

1. What are the challenges for businesses that currently keep their records on paper or simple spreadsheets in moving to an integrated software package for record keeping and what further measures or support would help businesses to meet these challenges?
2. What level of financial support might it be reasonable for the government to provide towards investing in new IT, software or training, to whom should such support be aimed, and what is the most appropriate form for delivering such support?
3. Do you have any views on what VAT data the updates should contain? Do you have any views on the advantages or disadvantages of including VAT scheme data in the updates? If so, which schemes and which data should be included in the updates?
4. Do you agree businesses should be allowed one month to submit their update? Would any problems be caused for VAT registered businesses by standardising the time limit for updates for all taxes?
5. What criteria should be applied in determining whether to exempt a particular business or business type from the requirements of MTD?
6. Should charities be exempt from the requirements to maintain digital records and to update HMRC at least quarterly?
7. Should trading subsidiaries of charities be exempt from the requirement to maintain digital records and to update HMRC at least quarterly?
8. Should CASCs be exempt from the requirement to maintain digital records and to update HMRC at least quarterly?
9. Do you agree that £10,000 annual income is an appropriate threshold for exempting businesses from Making Tax Digital? Do you have any other comments on how the exemption should operate?
10. Should the smallest unincorporated businesses that are not exempt have an extra year to prepare for Making Tax Digital? How should eligibility for this group be defined?
11. Do you believe that there is the opportunity for MTD to create savings for your business? What percentage time reductions would you see from the following?
    • Targeted software tax guidance (prompts and nudges to get information right first time).
    • Gathering, collating and inputting data.
    • Reporting obligations through providing regular updates.
    • Any other potential savings not covered above.
12. What costs might you expect your business to incur in moving to the new regime? Please provide details of the costs for:
    • Time spent in your business familiarising with the new processes and conversion to these new processes.
    • Software expenditure costs (new or upgrading software).
    • Hardware expenditure costs (purchase of a computer, tablet device, etc).
    • Any other costs which are not covered above.
13. Do you expect that your business will incur additional on-going costs as a result of these changes? Please provide the details of the additional costs or time for:
    • Additional support from your accountant or tax agent.
    • Additional time spent gathering, collating and inputting data.
    • Additional time reporting obligations through providing regular updates and any end of year activity.
    • Any other costs or time spent not covered above.