Making Tax Digital: Condensing HMRC’s Consultation Outcome Presented by Mark Purdue, ATT Product Manager – Tax Products Thomson Reuters 9 February 2017

Agenda Re-cap Consultation Responses Agent Access Beta Program Digital Tax Accounts & Quarterly Reporting Consultation Responses Highlights and key points from each document Agent Access Update on current position Beta Program Register your interest Q&A

Making Tax Digital Re-cap

Digital Tax Accounts: What are they? Background Announced in March 2015 Budget Ambitious Plan to bring tax compliance fully online Allowing self-serve of tax affairs Every Person will have a Personal Tax Account Every Business will have a Business Tax Account

Digital Tax Accounts: Quarterly Reporting Trading and property income to be reported Digitally Quarterly (or more frequently) Recent consultation on what data is reported Main worry for the profession Which clients are impacted? Some clients won’t cope!

Consultation Documents Consultation from August 2016 to November 2016 Six in total Bringing Business Tax into the Digital Age Simplifying tax for unincorporated businesses Cash Basis for Property Income Tax administration Voluntary Payments Transforming by use of third party data

6% 87% 7% Based on 395 respondents.

Consultation Documents Six in total Bringing Business Tax into the Digital Age Simplifying tax for unincorporated businesses Cash Basis for Property Income Tax administration Voluntary Payments Transforming by use of third party data

Making Tax Digital: Bringing business tax into the digital age

Ch. 2 – Acquiring Digital Tools Clarification on spreadsheets Allowed for recordkeeping Likely combined with MTD software to do quarterly update Re-commitment to Free software Exact details still to be defined – discussions ongoing Available to ‘simpler businesses’ (e.g. Unincorporated, Below VAT Threshold, No employees) No free software for accountants Functionality needed Record Keeping Quarterly updates Annual Declaration Process HMRC to maintain a register of MTD compatible software

Ch. 3 – Digital Record Keeping Digital Records ‘Digital’ requirement does not extend to invoices/receipts (only transaction data) ‘Digital’ does not mean cloud – desktop solutions are acceptable Income from Property Previously suggested; report per property Now proposed update will be for all property Software must be capable of storing address etc. for each property

Ch. 4 – Establishing Profit Accounting Adjustments Must be by year end declaration, but can be part of quarterly update Partnerships Original proposal – partnership update partner tax account as part of quarterly update Now mandatory for year end – optional for quarterly update Partnerships have to provide quarterly update information for all income and gains Turnover over £10m – deferral to 2020 (summer consulation) CIS Contractors Proposal was contractor updates income in subcontractor tax account Not happening for April 2018 (subcontractor will now quarterly report all income)

Ch. 5 – Providing Updates What data is being sent as part of the update Categorised – same categories as SA (e.g. boxes from SA103 and SA105) Three line accounts – now allowable (previously removed) Update Periods Update period is a quarter Multiple updates within the same quarter (e.g. monthly) But the period is a quarter Ability to change the quarterly cycle to end on any day in the month As an example, to provide updates every two month would not be allowed, as the second update spans a quarter end date

Ch. 5 – Providing Updates Time to provide update Correcting Errors One month from period end Correcting Errors Originally suggested – as soon as identified Revised – send corrected data as part of next update Short Accounting periods Consultation suggested elect for each update to be an accounting period No mention of this in the responses Although aspects of basis periods (discussed later) still to be decided

Ch. 7 – Exemptions Entry turnover Deferral to 2019 Digital Exclusion Consultation suggested £10,000 Per response – further consideration – later 2017 Deferral to 2019 Consultation suggested smaller trades deferred to 2019 (e.g. over £10,000, but below £X) Probably one of the most important areas for an accountant (which clients are in, who’s deferred?) Digital Exclusion Legislate to cover Digitally Excluded Based on VAT definition (by reason of religion, disability, age, remoteness, or any other reason)

Making Tax Digital: Simplifying tax for unincorporated businesses

Simplifying tax for unincorporated businesses Cash Basis £150,000 entry threshold £300,000 exit threshold Free choice to move between cash basis and accurals Basis Periods To follow! Simplifications to GAAP

Making Tax Digital: Simplified Cash Basis for unincorporated property

Simplified Cash Basis for unincorporated property businesses Adopt the same £150,000 entry limit Cash Basis – automatic and by default Ability to opt out (accruals) Limit and decision applies per business (e.g. UK property and Foreign property) Joint Owners Free to make independent choices over cash vs accruals Married and Civil Partnerships cannot make this independent choice

Making Tax Digital: Tax Administration

Ch. 2 – Compliance Powers Confirmation that HMRC will have no powers to enquire into Quarterly Updates Otherwise, pretty much business as usual Legislation to replicate existing HMRC powers

Ch. 3 – Late Submission Ch. 4 – Late Payment Ch. 5 – Interest Commitment – no penalties for first twelve months No other information – consultation later this year Ch. 4 – Late Payment No decisions – further consultation later this year Ch. 5 – Interest No decisions – further consultation later this year

4% 46% 27% 9% 14% Based on 480 respondents.

Making Tax Digital: Voluntary Pay As You Go

Ch. 2 – Voluntary Payment Optional nature of payment reinforced Continue to develop electronic payment methods Voluntary Payments to be auto-allocated against next liability HMRC will publish their allocation rules Fraud prevention important Refunds only made to originating account/card Refunds will always be made (if claimed) If upcoming liability within 30 days, message to explain consequences If upcoming liability within 7 days, restricted if any tax payment 7 days late in last 12 months If HMRC enforcement action in last 12 months, HMRC reserve right to not refund

Ch. 3 – Other Aspects Interaction with Payments on Account Improved HMRC messaging in this area This will be confusing Getting this right is key Example on next screen Payments by third parties Partnerships on behalf of partner – partner can ‘opt in’ to allow Partnership to receive payment information No other data will be shared Any third party can make a payment, but HMRC will not share data

Interaction with Payment on Account - Example Accounts to 5 April 2018 (first year) Basis of assessment for 2017/18 Tax Due = £5,000 Due for payment 31.01.2019 Based on this information; Payments on account due for 2018/19 First = £2,500 (31.01.2019) Second = £2,500 (31.07.2019) £7,500 due 31.01.2019 £2,500 due 31.07.2019 Accounts to 5 April 2019 not due until 31 January 2010 But Quarterly updates will be sent – these will give the option of paying voluntarily £7,500 due 31.01.2019 ? £2,500 due 31.07.2019 ? 31.01 2010 To 05.01.2019 To 05.04.2019 To 05.07.2019 To 05.10.2019 To 05.01.2020 £500 £700 £1,200

49% 49% 2% Based on 520 respondents.

Making Tax Digital: Transforming the tax system through the better use of information

Ch. 2 – Using Current Data Better When third party data is added to a tax account – a notification will be sent out Written and/or secure messaging Presentation of data – Clear, easy to identify, detailed Ch. 3 – Information Standards and Security Significant safeguards in place to protect data Example – partial bank account numbers only So if it’s not yours – no disclosure Ownership split (e.g. joint bank) – no requirement for third party to provide split, but can do Query Resolution – mainly up to taxpayer (or their agent!) If querying level of income However, if not your income – queries related to source and relationship to taxpayer – via HMRC Data subject to outstanding query will not be used in calculation – but estimate at year end

Ch. 5 – Future Ambition Consultation asked what additional Sources? Letting and Rental (via letting agent) Investment Income (e.g. Stockbroker? Dividends direct from company?) Gift Aid Chargeable Events Foreign Trust HMRC will analyse further and consider approach Further consultations to follow

Making Tax Digital: Re-cap of outstanding issues

What we don’t know What is the exemption turnover? Who is deferred to 2019 based on turnover? Proposal around short accounting periods vs quarterly updates What is a Basis Period? GAAP simplification Penalties/Interest/Surcharges Future priorities for additional third party data

2% 10% 65% 23% Based on 488 respondents.

Agent Access

Process Overview Agent needs to be registered under MTD And using authorised software Agent can then ‘subscribe’ existing clients Agent can also ‘register’ new clients

Agent Registration Agent needs to register under MTD system Likely process; Initial log-in using Gateway credentials Set up two Factor Authentication Gateway credentials are linked to Agent Codes Agent codes linked to new Agent Services permissions When done, the agent now has MTD access Note Likely the two factor will be linked to a ‘known’ person (partner, director) of firm HMRC looking to have one record under MTD per firm (if you have multiple gateway credentials)

Authorising Software First you need to be an MTD registered agent Log into HMRC, via the software

Authorising Software First you need to be an MTD registered agent Log into HMRC, via the software Authorise to access specified services for all clients for which you act

Authorising Software First you need to be an MTD registered agent Log into HMRC, via the software Authorise to access specified services for all clients for which you act Authorisation will need to be repeated periodically (maybe 3, 6, or 12 months)

Subscribe Clients An authorized agent can ‘copy’ client to MTD

New Client Registration i.e. 64-8 Process Can be started by either agent, or client i.e. Agent can register that they act for the client Or client can register that they wish agent to act on their behalf Other party needs to agree i.e. if agent registered they act for client, client needs to confirm Vice versa Confirmation is via software (which will include Tax Account in the future) Once an agent is authorised, they can access MTD data straight away (via software) 64-8 process to remain for Digitally excluded clients

HMRC Beta Program

HMRC Beta Programs Public Beta Starts April 2017 Subject to HMRC agreement, open to all Scope up to 400,000 participants Allow practice (for a selection of clients) to adopt to MTD a year early Open to individuals with one sole trade and/or UK property income

44% 11% 45% Based on 528 respondents.

Making Tax Digital: Q&A We had many questions which will be compiled into a document and circulated soon!

73% 24% 3% Based on 312 respondents.

Read HMRC’s summary of consultation responses, published 31 January… View them here

To take part in the Public Beta… Thomson Reuters customers please email your Digita Account Manager. Non-customers – please contact HMRC

For more resources visit our MTD Hub…digita.com/MTD

Connect with me… @MarkPurdueTax #MakingTaxDigital