The government expects every business to keep its accounting records in a digital form.
This key requirement will under-pin Making Tax Digital (MTD) and was reiterated by Treasury secretary David Gauke at a business event last week.
What’s more “digital form” doesn’t mean an Excel spreadsheet. Each business and landlord will have to use some form of accounting software which has a capability to communicate with HMRC’s systems. It is expected that further details on this software requirement will be included in one of the five consultation documents on MTD to be released shortly after the Budget.
However, moving to a commercial software package will mean extra costs and data transfer problems for many businesses who have created their own bespoke accounting software, or who rely on Excel spreadsheets.
Without the use of internet-connected accounting software there will be no cost savings for businesses under the MTD project. HMRC has assumed that every business will seamlessly transfer a summary of accounting data from their accounting software to HMRC each quarter.
The majority of accountants in the small business arena are dismayed by HMRC’s total lack of understanding of how accounts are currently vetted prior to submission. Under the current system there is time for this process to ensure accounts submitted are correct and the right amount of tax paid. However, with submissions of digital information quarterly the scope for error is significant.
As more and more information becomes available no doubt the lobbying of politicians will intensify. However, HMRC succeeded by implementing direct VAT payments and the introduction of RTI so the odds on them winning this one must be high. Although, the price may be a heavier one as HMRC’s record in system implementation is not good. And any forecast chaos for MTD will only fall on the taxpayer and in this case small business taxpayers.