As part of its Making Tax Digital (MTD) roadmap, published in 2015, the Government has proposed that all self-employed workers should submit a quarterly report in an approved format to HMRC. These reforms were due to be included in the 2017 Finance Bill and commence operating in April 2018, but for some workers this has now been delayed for a year (see our response to the 2017 Budget).
WGGB believes that these reforms will significantly affect all of our members, who are self-employed, often have low earnings and an irregular and unpredictable work pattern. For example, if the proposals go ahead and your gross turnover is more than £10,000 per year you will have to submit quarterly account information, install new, approved software and receive limited support and training, all potentially at a cost to yourself.
Have your say
We have detailed a summary of our concerns below and have drawn up a more detailed template letter for you to send to your MP. We urge you to do this and you can download the letter here. If you don’t know who your MP is simply do a search using your postcode here.
Quarterly submissions could escalate accountancy costs by 400%. Other costs are hardware, software and possibly training. A lot of this cost may be ongoing.
We think this should be free for users and we are not clear whether any free software will have the necessary functionality, eg to deal with foreign earnings. There are also issues around poor broadband connections, cyber security and storage space (particularly on smartphones). If existing record keeping is accurate and meets requirements of MTD, eg using Microsoft Excel, why not allow taxpayers to keep using this? Also we propose that MTD is not rolled out until there is fast broadband coverage across the whole of the UK.
Training and support
HMRC have referred to webchats, telephony and ‘Needs Enhanced Support’, but would not be providing any face-to-face training. We think it is essential that support is accessible, eg via a helpline, and that training should be supplied for free, if necessary, by software providers.
Summary data every quarter
This should be limited to income and expenditure, and it should be sufficient to provide totals by the agent if need be, ie no requirement to record transactions in real time.
We think the £10,000 MTD threshold for gross turnover is far too low and would suggest instead the VAT registration threshold which is currently £83,000.
Delay in implementation
MTD was due to commence operating in April 2018 but for workers under the VAT Threshold this has now been delayed for a year (see our response to the 2017 Budget). We think that there should be a delay of at least two years for all businesses within MTD. This is because you need two years to pilot it properly – four quarters plus the nine-month End of Activity period (to submit final adjusted figures).
This is good in theory but cash flow varies so much for writers that a quarterly payment may end up being a lot more pro rata or a lot less than the eventual tax bill and so would not give an accurate indicator of eventual tax liabilities for most writers. For the same reason we do not think basing payments on account on quarterly submissions would be a good idea.
if there is to be a penalty system it should be a fixed value model and penalties should be proportionate to and reflect the size of the business. A decision to impose points under the new system should be appealable as well as the penalty itself once activated. A lead in period of at least two years is needed and information to taxpayers must be made as clear as possible.
HMRC have asked whether there should be further exempt groups, as well as certain disabled groups. We believe that the self-employed entertainment sector that our members work in should be exempt due to variable work patterns and unpredictable income. If the exemption is set at £10,000 our members may be above or below that figure depending on the year, which will lead to confusion about the applicability of MTD. In addition, they may have great difficulty in providing the data for or meeting the three month submission targets.
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