First unveiled in 2015,Making Tax Digital was heralded as an end of the year-end tax return, with each individual and business set to have access to a personalised digital tax account.
The tax authorities said customers would no longer have to wait until the end of the year to know how much tax was due, with HMRC collecting and processing information “as close to real time as possible”.
However, concerns were raised by the business community regarding how much of an upheaval the changes would present. These included the pace of alterations, the ability for business owners who struggle with technology to adapt and data security when using third-party software.
In completing its consultation, HMRC has revealed that businesses will be able to continue using spreadsheets tor record tax affairs, which can then be linked to software designed to automatically generate and send updates to HMRC.
As part of Making Tax Digital, free software will be available to the “majority” of small businesses, while those that cannot go digital will not be required to. Furthermore, all self-employed businesses and landlords with turnover of £10,000 or less will not have to keep record digitally or make quarterly updates.
Gary Turner, UK MD of accountancy software business Xero, said: “As much as we support the overarching vision of the Making Tax Digital policy, it was inevitable that we would see some form of delay or re-think given the sheer scale, complexity and ambition of the project.
“One of the most challenging parts of HMRC’s original plan lay around how they intended to tackle the problem of digitising the financial affairs of millions of small self-employed, sole trader and partnership businesses. From a software product marketer’s perspective this cohort is particularly problematic since most of these entities don’t habitually use accounting software or bookkeeping software today.
“It follows that if the UK’s micro entities have long eschewed accounting software for very good reasons, then effecting behavioural change among this community will not be trivial and it will take time to prove and establish such a large change, and other methods should therefore be considered.”
Other concessions include a move to allow businesses eligible for “three line accounts” to submit a quarterly update with only three lines of data (income, expenses and profit), while partnerships with a turnover of £10m or more will see Making Tax Digital for Business deferred until 2020 – rather than 2018.
HMRC believes it is important to also consider other issues such as the initial exemption thresholds and deferring the changes for some small businesses.
Jim Harr, director general, customer strategy & tax design at HMRC, explained: “There were more than 3,000 responses to the consultations and I’d like to thank everyone for their time and effort. We are pleased that there was a broad welcome for the principle of Making Tax Digital and HMRC developing a transparent and accessible tax system fit for the digital age.
“The appetite for digital services is growing and traditional paper-based processes make no sense in the 21st century where the vast majority use digital services.”
Despite the consultation into Making Tax Digital, new research from FreeAgent has found that 84 per cent of business owners and freelancers do not believe enough information has been provided. One-in-five questioned by FreeAgent had never heard of the policy, while 41 per cent who did know were positive about its intentions.