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HMRC publishes response to Making Tax Digital consultations

Tim Woodgates

HMRC published their response to the consultations that were undertaken for the Making Tax Digital (MTD) regime on 31 January 2017. Moore have been actively participating in the Making Tax Digital consultations and have strongly expressed the concerns of our clients about the proposed changes.  

The positives

Spreadsheets will be permitted for digital record keeping.
This is a very welcome concession as it will enable current users of spreadsheets for their record keeping to have their transition to the new MTD regime with less disruption.  However, HMRC state in their response that this is “likely to involve combining the spreadsheet with software” so it is not wholly clear on the detail yet. 
There will be no late submission penalties for the first 12 months of the regime.
This is a reasonable and sensible response from HMRC and the “soft landing” approach will enable tax payers to acclimatise to the new system without fear of heavy penalties in the initial stages.  Further announcements on the administration of the new regime are expected from Finance Bill 2017.
Invoices and receipts will NOT need to be stored digitally.
This will again ease the disruption to the new regime as it will mean less “digitising” of records than was initially thought.
Simplified quarterly reporting for smaller businesses.
Businesses eligible for three line accounts for tax returns (where turnover is below the VAT threshold, currently £83,000) will be able to submit a quarterly update with only three lines of data - income, expenses and profit.

The negatives

Exemption threshold for lower turnovers/deferral for smaller businesses - yet to be decided. 
The final decision on this is expected in Finance Bill 2017 and will be key in determining the extent of the MTD regime for tax payers so we await further information on this point.
No change to proposed implementation date – April 2018.
It is unfortunate that HMRC have not conceded any delay in the implementation of the MTD regime as there are concerns over both the ability of HRMC and the ability of tax payers to be ready for the demands of the new system.

Other points

As part of the proposed regime, an annual check of the quarterly information submitted would be required and any amendments made as necessary.  HMRC have confirmed the proposed end of year check will need to be submitted by the earlier of 10 months from last day of period of account, or 31 January following the tax year.  This means that for 31 March/5 April year ends, the end of year statement will be on the same filing basis as the current tax return regime. 
HMRC are piloting digital record keeping and quarterly updates from April 2017.  This was in response to significant criticism from both the consultancy process and the Treasury Select Committee scrutiny over the technical capability of HMRC in dealing with the increased level of date being provided.
Charities (not including trading subsidiaries) will not need to keep digital records
For partnerships with a turnover above £10m, MTD will be deferred until 2020.


There have been some noteworthy and reassuring allowances made over the form of digital records and the penalty regime for the initial period of MTD.  It is however disappointing that no announcement has been made on the exemption threshold.  This is such a fundamental point for MTD as it establishes those who need to take immediate action to be ready and compliant with the new regime from April 2018. 

Some assurance may possibly be taken from the fact that the consultation period has obviously given HMRC food for thought on this point and we will continue to press HMRC to reach a measured and practical decision to raise the proposed threshold of £10,000 significantly upwards.