This page has been archived because it is no longer current information but is still relevant, or it is current but over 12 months old
Publish date: 19 May 2017
Archived on: 13 July 2017
In light of the government announcements on 13 July changing the timetable and mandation of MTD, this content has been archived. While its Demystifying MTD webinars series ran, ICAEW collated feedback from practitioners and compiled a list of the key questions for which we did not yet have clarity from HMRC.
How will the commencement of MTD reporting work for a taxpayer with more than one MTD income source where the first MTD accounting period for each source falls within a different tax year?
Expected business turnover year ending 31 March 2019
Expected gross property income 2018/19
Total is > VAT registration threshold so it’s a 2018 start. First APs starting after 5.4.18 are:
Business 1.4.19 – taxed in 2019/20
Property 6.4.18 – taxed in 2018/19
This would create the situation that for 2018/19 the property income will be reported via MTD and business income via SA return
When will the consultation document on corporates and complex businesses be published? Are any other consultations expected – VAT?
We will be responding to the consultation document on late submission penalties but one particular concern is that for income tax reporting each MTD source (multiple trades and/or possibly more than one rental source) has a separate reporting obligation potentially incurring separate penalties. Is this correct?
There are two tax administration issues on which no information is available:
a. The notification deadline which is currently 5 October after the end of the tax year. How does this fit with MTD obligations?
b. The right for a taxpayer to amend a return up to the first anniversary of the filing deadline. Will there be a similar right (and process) under MTD for amendments after the end of year finalisation?
We have no information on the application process for exemptions or the detail of how they will apply – the digital exclusion exemption, the low turnover (£10k) exemption and the delay to 2019 for businesses below the VAT threshold. How will the application process work?
What will be the process for those who are exempt from MTD for business updates and end of year declarations. Ie, will HMRC self assessment software and paper self assement returns continue as is or will there be alternative process? (Such as, phoning in numbers which HMRC put into the personal tax account/business tax account which then generates paper communications for the taxpayer.)
Will a business be able to try out the system, in a pilot for example, but then come out until their mandation date?
Interaction between the 10 month EOPS and 31 January final declaration
We are unclear about exactly what HMRC expects to be included in the End of Period Statement (EOPS) and what will be in the Final Declaration. Which claims and elections are in each?
We assume that the EOPS is just for trading and property income and anything that should be included in the net profit/loss (boxes 47 and 487 on the SA103F) would have to be included in the EOPS, but what about adjustments that come after that: capital allowances, basis period adjustments, loss claims, own use and averaging adjustments?
How would changes of accounting date work under MTD – previous submissions may need to be reworked? Overlap relief?
How will it work in cases where the basis period does not match an accounting period especially where figures for part of a quarterly update have to be allocated to a basis period?
We understand that taxpayers may be able do the fourth quarterly update, the EOPS and the final declaration at around the same time, but this would not apply in all cases? (For example, a taxpayer with a 30 April year end would have a 10 month deadline of the following 28/29 February, which is before the relevant tax year has ended?)
For example, a taxpayer with an accounting period ended 30 November 2019 year end. This would be the basis period for 2019/20. The 10 month deadline would be 30/09/20 and the self assessment deadline would be 31/01/21. The final declaration could be made at the same time as the EOPS, but what would need to be included in the EOPS and the declaration?
Another example, a taxpayer who starts trading on 1 January 2019 and chooses a 30 November accounting date (see table below).
a. 2018/19 – the 30/11/2019 accounts will need to be finalised in time to meet the deadline for the final declaration for 2018/19 on 31/01/2020. (This allows only two months, this is the same as currently.)
b. 2019/20 – the 30/11/2020 accounts will need to be finalised in time to meet the deadline for the final declaration for 2019/20 on 31/01/2021. (This allows only two months; this is the same as currently.) Could be messy as will need to include part of the figures reported in the quarterly update for the quarter ended 28/2/2020.
Another example, a taxpayer starts trading on 01/12/18 and chooses a 31 March year end. The first quarterly update will be for the quarter to 28/2/2019 and the second for the quarter to 31/05/2019. How do these quarterly updates translate to basis periods? Can the taxpayer do a one month update for March 2019, close that accounting period and then start quarterly reporting from 01/04/2019?
Based on accounts
01/01/19 - 05/04/19
Part of 11 month a/cs to 20/11/2019
01/01/19 - 31/12/18
All of 11 months a/cs to 30/11/19 plus one month of a/cs to 30/11/2020
30/09/2020 for a/cs to 30/11/19 and 30/09/2021 for a/cs to 30/11/2020
01/12/19 - 30/11/20
A/cs to 30/11/20
How will partnerships report non-trading income?
Can profit allocations be made each quarter?
How does one define turnover for an investment partnership?
For tiered partnerships how do we look through all the partnerships?
For tiered partnerships where the bottom line partnership is offshore – are they within MTD?
For any retail(ish) funds structured as a partnership abroad – are they now expected to do MTD?
Pilot and software
How is the pilot progressing?
a. How many agents are registered? Fewer than 10?
b. How many businesses are registered? Fewer than 100?
When can we expect to learn more about the API release timetable – software companies are not now expecting the API for quarterly updates until after the election?
What is the latest position on the provision of free software – the 60% free software assumption in HMRC’s impact assessment appears to be very high?
What is the latest position on spreadsheets – some of the software companies have indicated that they are developing a product to link data from spreadsheets to their accounting software products – do we know how many are planning to do so?
Given delays to the pilot and legislation will the implementation timetable be altered?
How does HMRC intend to identify and communicate with the estimated 400,000 businesses who are expected to be mandated from April 2018?
We understand that where a property is held jointly each person will report their share of income and expenditure. If so, will the totals also need to be reported?
We assume that UK and overseas property businesses and UK and overseas furnished holiday lets are all separate property businesses with separate reporting obligations. Is this correct?
How will gains be reported?
Do 'rent-a-room' property businesses need to comply with MTD reporting requirements? Are they a separate business? Does turnover from a 'rent-a-room' business need to be included when looking at the exemption threshold and deferral threshold?
How will the £1,000 property allowance (if and when enacted) interact with MTD, in particular when looking at the exemption threshold and deferral threshold?
Some overseas property businesses currently report on a calendar year basis as it is the only practical way to handle double tax relief. Will it be possible to continue on this basis when MTD is operational?
Will there be any changes to the non-residents landlords scheme? Will landlords still be required to report even if they have tax deducted under this scheme? Communication with NRLs will be a particular challenge.
How should interest deductions and adjustments be made given that not all interest may be deductible in arriving at profits.
What success criteria is HMRC intending to establish in relation to MTD and what performance measures will be used and published?
How, where and when will HMRC link information from self-employment and property income updates in the business tax account (BTA) with pre-populated information in the personal tax account (PTA) and establish and display the individual’s liability?
How does HMRC propose to deal with those sources of income and claims which it can never hope to pre-populate (for example, foreign income, residence and domicile information) and all the less commonly used parts of the tax return?
Will there be a facility to provide information on other income sources either via MTD software or directly into the PTA/BTA (perhaps on an interim basis until pre-population of that item is possible) and thereby avoid the need to file a self assessment return? We understand that HMRC wants to avoid those in the pilot 2017/18 having to file a self assessment return?
If there is to be a facility to provide information on other income via MTD software or directly into the PTA/BTA, will agents be able to do this using their practice software (on the assumption that there will be no direct agent access to the PTA).
How will the system work for those taxpayers who will remain in self assessment, but who don’t have trading or property income? Will it be possible for agents to report for these taxpayers using MTD software or will SA continue?
What level of accuracy is HMRC expecting? Will there be an equivalent of the tax return white space to explain unusual or variable income levels.