HMRC’s Digital Agenda for Tax Accounting – Six Consultation Papers issued

After some delay HMRC issued on the 15 August a series of six consultation papers on their plans to move the capture and calculation of tax reporting to a more integrated digital platform. The consultation period runs until the 7 November 2016 and it would be well worth a read through for all businesses as well as our colleagues in both the accounting software area and the accountancy sector.

For readers from the IT software/technology sector it would be worth reading the paper: “MTD: Bringing Business Tax into the Digital Age”. The challenge remains to develop Application Programming Interfaces (API) which need to be capable of capturing and submitting data in the specific formats required by HMRC. Clearly an opportunity to devise products to create the interface between existing business accounting software and HMRC future reporting requirements.

Making Tax Digital (MTD) impacts across all tax payers and starts in April 2017 with HMRC capturing PAYE information including from third parties, such as banks and building societies, to ensure, as HMRC state, “that the customer is on track to pay the right amount of tax and National Insurance contributions for the tax year”.

Some small businesses (unincorporated entities under £10k turnover) are to be excluded from the new arrangements and the consultation also looks to consider the impact on the charity sector of the new reporting plans. The current papers impact on the self-employed, landlords and all businesses which are not limited companies and we hope to see the detail of these plans for limited companies later in the year.

For companies there will be the wider impact of the requirements as they impact across all taxes with new Income Tax and NIC obligations starting from April 2018, VAT from April 2019 and Corporation Tax from April 2020. From the VAT perspective we have a keen interest in seeing how the more complex adjustment processes within the VAT Account, specifically around Partial Exemption and Capital Goods adjustments, will be managed.

The paper - ”MTD: Tax Administration” also raises the issue of aligning a new penalty model that would work across all the taxes and cover compliance issues, late submission and late payment penalties as well as aligning interest rules where taxpayers under or over pay. One of the models being considered envisages a penalty point allocation to late submissions whereby a financial penalty would be levied once the set penalty total is exceeded.

The existing VAT penalty Default Surcharge will remain in force until further notice and VAT registered businesses should not find the same late payment or submission failure being caught under both penalty regimes but it would be important to monitor that position going forward as systems evolve.

It’s a wide ranging set of proposals and looking at the further paper - “MTD: Transforming the tax system through the better use of information” brings into the process the collection of information which HMRC will have access to from third parties including employers, banks, pension providers and other government departments. Additional information sources could also come from other agents perhaps to share details of properties rented out to verify to landlord’s income declarations.

The consultation period stays open until 7 November and it will be important for organisations across all sectors, whether public or private sector bodies, to understand the impact of these reporting processes especially on the VAT data required for submission to HMRC.

For large organisations whether universities, colleges, housing associations or manufacturers with integrated accounting systems or those planning new systems this will be an important action to add to the compliance checklist for desired outcomes.

For VAT specific support in reviewing the impact on your systems please contact us at emailus@centurionvat.com or your usual Centurion VAT contact.

Liz Maher Director Centurion VAT