Do all the government’s noughts and ones add up?

PETER WILKINSON of Barnett & Turner’s Associate firm, Langtons has been closely involved in discussions of the government’s plans to digitise the tax reporting system. Here he gives his own perspective on a number of the questions accountants and their clients are asking. Is the whole ‘Making Tax Digital’ project actually going ahead?

Yes. A number of related consultations were launched in November last year, but it’s pretty clear the plans will proceed, albeit with a few fairly minor concessions. We were hoping to get the final shape of it in the Finance Bill. However, this is light on detail and it is clear that a lot of the rules are going to be made by regulations, which will minimise parliamentary scrutiny.

The plans are controversial, aren’t they?

Again, yes. The Treasury Select Committee, chaired by Andrew Tyrie MP, supports the principle of digitisation. At the same time, they’ve gone through the proposals in forensic detail, taken evidence from a variety of people including the Federation of Small Businesses, and concluded that a year’s lead time for the project just isn’t enough. At the moment, their feeling is the supposed benefits just aren’t proven. They recommend pilot schemes to see how the idea works in practice.

What will the new regime actually mean for businesses?

Effectively, you’ll be making five tax returns a year. HMRC doesn’t see it that way, but you’re going to be expected to report quarterly on your income, expenditure and taxable profit. If that’s not a tax return, then what is? You can paint stripes on a horse, but that doesn’t make it a zebra!

You’ll then have to put in a further return at the end of the year, making corrections as appropriate to your earlier submissions. You will need software to upload the relevant data to the Revenue.

Will smaller businesses be able to cope?

That’s a good question. HMRC assumes that everyone will use business software and it will be a straightforward data dump. But a lot of small businesses don’t have the correct level of sophistication. Can their software deal with debtors and creditors, for instance? With stock and work in progress? We’ve been told that it will be possible for very small companies to submit three-line accounts – their turnover, expenses and profit.  But if that’s it, there does really seem little point to the whole exercise.

Are there any exemptions?

Practically none. Your turnover would have to be lower than £10,000 per annum to stay outside the new digital system.

Could it be that we’ll have to pay tax quarterly?

For the moment, the answer is no, although many people have speculated that this may be the long-term goal of the government.

What are the cost implications for business?

It seems very likely that larger accountancy bills will become the norm. And although there’s some suggestion that companies may be able to continue using Excel spreadsheets with some kind of technological bolt-on, the chances are you’ll need some new software. The government is trying to persuade developers to offer this for free, but whether that comes to fruition remains to be seen. There is bound to be expense in setting the new system up, training people in its use and so on.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at