It was announced back in March 2015 that annual tax returns would be scrapped. You can view my immediate cynical thoughts on this here.

We were expecting at least five consultation documents on this post budget, but HMRC have just confirmed that these will now not be published until after the EU referendum in mid-June. There will however be no slippage in timescales for its implementation. The Association of Taxation Technicians (ATT) have called on HMRC to postpone its introduction for at least a year.

So what does ‘making tax digital’ actually mean? Essentially, every taxpayer will have a digital tax account. Each individual will have a personal tax account and each business a business tax account. So far, so simple. These digital tax accounts will need to have data uploaded to them. This will be done quarterly by the taxpayer and HMRC have a vision that this will be by way of smartphone app or similar.

I am from the smartphone, ipad generation (just about) and I am all for doing everything digitally wherever possible. However I can see real problems with this for the clients I see every day. We understand from HMRC that every business will need to be using some sort of software that will integrate with and talk to HMRCs software. So not only will they not be able to keep their accounting records in an old fashioned manual cashbook (of which we still see a surprising number) but even excel will not be sufficient to keep records as it cannot ‘talk’ to the digital tax account.

An ICAEW study recently suggested that 75% of all businesses and 82% of sole traders would need to change their record keeping systems to facilitate Making Tax Digital and I share Andrew Tyrie’s (the chair of the Treasury Committee) scepticism in respect of the suggested £400m savings to businesses.

I am also unconvinced about the quality of the information that HMRC will receive for two reasons.

Firstly, what use will they be able to put quarterly reported data to? Unfortunately (but not perhaps for accountants) accounts and therefore profit or loss and therefore tax is not calculated by taking total expenditure for the period away from total income (a ‘cash’ basis’). Instead these are prepared on an ‘accruals basis’ (one of the fundamental principles of accountancy). The accruals basis means that income and expenditure are matched and so adjust for stock purchases, annual bills paid, and goods supplied for which payment has not yet been received – that is a true and fair view of the businesses position. For the majority of businesses the absence of an accruals basis means that the data outputs will be meaningless.

Secondly, and I mean this in the nicest possible way, clients rarely get everything right. And to be fair why should they? I couldn’t go and run a farm or build a house so why should we expect non-accountants to be able to maintain 100% accurate accounting records and calculate their tax liabilities? And this is fine as long as they have an adviser to tidy it up for them before it goes to HMRC. Quarterly reporting will mean HMRC get the raw data, unfiltered.

I look forward to seeing HMRCs consultation documents in June once the excitement of the EU referendum is out of the way.

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