Press release: HMRC right to consult further on penalty plans for MTD compliance

The ATT has welcomed the announcement that businesses will have at least 12 months to become familiar with the changes before any late submission penalties will be applied and is especially encouraged that HMRC will consult further in the spring on the new penalty model.

It also welcomes that the cash basis entry and exit limits for unincorporated businesses¹ will be up to £150,000 and £330,000 and that this change will come in from April 2017, before mandatory quarterly reporting in April 2018.

Yvette Nunn, Co-chair of the ATT’s Technical Steering Group, said:

“We are very pleased to note that HMRC will consult further in relation to the penalty provisions that will arise from the Making Tax Digital changes. This demonstrates that the department really does want to create an effective penalty regime that is both fair and practical.”

The ATT is encouraged by the confirmation by HMRC that the Government will need to consider further issues such as the start date for compulsory digital reporting and the exemption limit. The Association has long called for a delay to the implementation date of quarterly reporting by at least a year. The Association has also previously called for the initial exemption threshold of £10,000 for quarterly reporting to be increased, with a growing consensus that it should be at the VAT threshold of £83,000. In the absence of a rise in this threshold, the ATT welcomes news that it is being considered.

Today the ATT is asking for HMRC to publish more details about its updated impact assessment on the cost to businesses of Making Tax Digital. HMRC’s claim that there will be a one-off transitional cost of just £280 per business, followed by small ongoing annual savings, is far more optimistic than that suggested by some business stakeholders. External evidence such as a survey of ATT members suggests that there will be no ongoing cost saving for business, especially if as expected businesses will need additional professional help.²

Yvette Nunn said:

“What is at stake here is the realistic ability of micro, small and medium size businesses to comply with a significant extra burden of tax compliance demands from HMRC when they are already trying to navigate their businesses through one of the most complicated and seemingly ever-changing tax scenes in the world.

“We are calling for greater transparency from HMRC on how it has arrived at such a low figure for the costs to businesses. There is a great worry among tax agents that this rush to Making Tax Digital will have a detrimental impact on their clients’ businesses and the red tape and administrative costs will put many small entrepreneurs out of business.

“While we do appreciate and support the long term logistical benefits to tax collection in Making Tax Digital, the Government’s claim that business will save money has never been demonstrated.

“Tax agents are vital to the success of Making Tax Digital and we have been telling the Government publically and privately that the implementation is too soon and should be delayed by at least a year. The project needs testing fully, and time given not only for software developers to develop solutions but time for them to be tested, whilst also allowing for taxpayers to investigate the solution relevant for them.

“We strongly urge HMRC to act on the growing consensus that the limit for quarterly reporting should be increased from £10,000 to perhaps as much as the VAT threshold of £83,000 to help take the strain from the smallest businesses.”

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Notes for editors

1. The cash basis allows businesses to account for their income and expenses when they actually receive payment and when they actually pay for an expense rather than having to recognise debtors and creditors at the year-end.
2. The results of a survey of members of the Chartered Institute of Taxation (CIOT) and the Association of Taxation Technicians (ATT) in 2016 strengthened the two bodies’ concern that the timescale for implementing compulsory digital record keeping is unrealistic and must be delayed. 
3. HMRC’s response to the consultations published today (31 January) can be found here.
4. HMRC has been informally consulting with people since early 2016, and published six formal consultations in August 2016.
5. ATT’s made submissions on the six formal consultations. These covered: bringing business tax into the digital age; simplifying tax for the unincorporated business; simplified cash basis for the unincorporated property business; tax administration; voluntary Pay as you go; transforming the system through better use of information; voluntary Pay as you go; transforming the system through better use of information.