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

2. 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

3. Making Tax Digital Re-cap

4. 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

5. 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!

6. 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

7. 6%
87% 7%
Based on 395 respondents.

8. 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

9. Making Tax Digital: Bringing business tax into the digital age

10. 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

11. 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

12. 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)

13. 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

14. 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

15. 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)

16. Making Tax Digital: Simplifying tax for unincorporated businesses

17. 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

18. Making Tax Digital: Simplified Cash Basis for unincorporated property

19. 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

20. Making Tax Digital: Tax Administration

21. 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

22. 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

23. 4%
46%
27% 9%
14%
Based on 480 respondents.

24. Making Tax Digital: Voluntary Pay As You Go

25. 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

26. 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

27. 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
Based on this information;
Payments on account due for 2018/19
First = £2,500 ( )
Second = £2,500 ( )
£7,500 due
£2,500 due
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 ?
£2,500 due ?
31.01
2010 To To To To To
£500
£700
£1,200

28. 49%
49% 2%
Based on 520 respondents.

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

30. 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

31. 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

32. Making Tax Digital: Re-cap of outstanding issues

33. 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

34. 2%
10%
65%
23%
Based on 488 respondents.

35. Agent Access

36. 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

37. 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)

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

43. 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

47. 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)

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

49. New Client Registration
i.e 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

50. HMRC Beta Program

51. 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

52. 44%
11%
45%
Based on 528 respondents.

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

54. 73%
24% 3%
Based on 312 respondents.

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

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

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

58. Connect with me…
@MarkPurdueTax
#MakingTaxDigital