HMRC responds to Making Tax Digital consultations

Susie Walker

Susie Walker

Partner & Head of Tax

Last year, the Government consulted with the business community on its plans for Making Tax Digital (MTD) – an initiative that sets out a vision for a transformed tax system, where HMRC will collect and process information affecting tax on a real time basis.

On 31 January, the Government issued its response to the Making Tax Digital consultation stating that, overall, the responses received backed its plans to have a digital tax system in an increasingly digital world. 

The original plans laid down involved having digital communications and quarterly reporting of profits to HMRC for businesses’ income tax and National Insurance in place from April 2018 where income is over £10k, VAT from 2019 and companies from April 2020.

Over the consultation period, a number of challenges were publicly raised in the media from a range of sources, including the Treasury Committee which recommended that the timeframe for digitalisation be pushed back and the threshold be raised in line with that of VAT reporting.

On 31 January, the Government issued its response to the consultation stating that, overall, the responses received backed its plans to have a digital tax system in an increasingly digital world.

As a result, plans are still going ahead however but on the feedback, a number of proposals have been amended and there are a few areas where the Government has deferred decisions until draft legislation is included within Finance Bill 2017. 

Key announcements include:

  • The Government recognises that a fully digital approach will be more difficult to achieve in some cases, or not feasible at all. As a result there will be exemptions that can be applied on an individual basis based on age, geography, etc.

  • Businesses will be able to continue to use spreadsheets for record keeping and invoices and receipts will not need to be recorded digitally, but information must be recorded in spreadsheets to meet the requirements of MTD. It is likely that a combination of spreadsheets with software will ultimately be required

  • Businesses eligible for three line accounts will be able to submit quarterly updates with only three lines of data

  • Free software will be available for the simplest of businesses

  • Charities (but not their trading subsidiaries) will be exempt from MTD

  • Partnerships with a turnover of +£10m will have their requirements under MTD deferred until 2020

  • Accounting adjustments for end of year activity can be made after the end of the period of accounts: either 10 months after the last day of the accounting period or 31 January of the year of assessment in which the profits are charged to tax, whichever is soonest.

  • The threshold above which a small business needs to enter MTD, and the timeframe to do so, is subject to further consideration by the Government. Final decisions will be made before the legislation is introduced later this year.

  • On transition to MTD, a period of at least 12 months will be allowed before any late submission penalties are charged. The Government recognises that further work is required in this area.

  • Exemptions will be in place for property income distributions to individual shareholders from Real Estate Investment Trusts (REITs), Property Authorised Investment Funds (PAIFs) and for exempt unauthorised unit trusts (EUUTs).

Live testing will begin in April 2017 with a large number of businesses over the course of a full year so that any issues can be ironed out.

Got a Question?

The team at Johnston Carmichael will be keeping a close eye on digital tax developments and will provide you with regular updates on HMRC’s digital agenda. Visit our dedicated Making Tax Digital page for more information.

If you have any questions in the meantime, please get in touch with me at or your usual Johnston Carmichael contact.