On 21 July the Treasury set out a first draft of the government’s ten-year plan to modernise the tax administration system. This includes restarting the making tax digital (MTD) program which had ground to a halt in the face of Brexit and the coronavirus pandemic.

MTD for VAT

At the moment VAT registered traders who are below the £85000 turnover threshold, are exempt from filing returns under MTD. They can, if they wish, still use the HMRC portal. There are about a million of these businesses.

The latest announcement is that allVAT registered traders will have to use MTD compatible software to file their VAT returns with effect from VAT periods starting on and after 1 April 2022. They will also be required to keep the VAT records in a digital format.

Some of these small VAT-registered businesses already file their returns on MTD compatible software. It is now time for the rest to be dragged kicking and screaming into MTD.

Extending MTD to other taxes

It is planned that from April 2023 micro self-employed businesses and unincorporated landlords will commence quarterly reporting through MTD software, and be required to keep digital records.

Four million unincorporated businesses and landlords with annual turnover exceeding £10,000 per year will be drawn into MTD.

An announcement on Corporation Tax and MTD is expected later this year.

There are significant issues concerning large partnerships and LLPs and it may be that MTD for them is still a long way off. Equally, partnerships that contain a corporate partner also present issues for HMRC and so MTD may be deferred for some time.

Tax payment and tax administration

HMRC say that they want to explore the timing and frequency of tax payments and to make them more “real time”, to align with the reporting of tax information. They want to make it as easy as possible for people to pay the right amount of tax and make it harder for taxpayers to avoid paying tax.  We will need to wait and see how HMRC plans to use technology to achieve these aims. 

As regards the general administration of the tax system, HMRC plan to consult on the following

• Obligations of taxpayers and HMRC
• Penalties and sanctions for failing to comply with obligations
• Taxpayers rights and safeguards
• How taxpayers are identified and register with HMRC
• How tax liabilities are identified amended and assessed.

So it appears that, however slowly, the system is going to be changing.

Alan Long

The Long Partnership