Following the release of HMRC’s response to the MTD consultation documents last week, more information is now coming through regarding the practicalities of the making tax digital software requirements.
One of the most significant concerns that came through from the consultation and the Treasury Committee is the timescale over which the program will be implemented. HMRC have responded that the system will be rigorously tested. The suggestion is a pilot scheme will run for a full year before implementation.
It is hard to see how this will be possible, given that there is currently no making tax digital software available to test, although HMRC has confirmed that they initially expect a few hundred taxpayers to take part in the pilot starting in April 2017, bringing in up to hundreds of thousands by the Autumn.
HMRC have also now committed to free software being provided for the most straightforward cases, and for taxpayers to be able to continue to use excel spreadsheets.
Representatives from the software companies appeared at a hearing before the House of Lords economic affairs committee. Despite trying to sound confident about the projected timescale, it is clear that the 14 month rollout period will be challenging.
The representatives made it clear that they need further clarification on what is required by HMRC. Despite communicating regularly with HMRC, they still do not have the full specifications. Kevin Dady, the group CEO of Iris SoftwareGroup said that the company could be ready by October or November this year, but only if they get the right information. This does not concur with HMRC’s proposal for twelve months of testing before compulsory implementation in April 2018.
Another challenge is HMRC’s late concession to allow taxpayers to continue to use Excel spreadsheets. The software providers were unaware of this change until HMRC’s announcement last week. Currently, HMRC’s systems are not compatible with Excel. The software companies now need to provide a solution to enable HMRC’s systems to interpret the data.
The provision of free software has also not been agreed. HMRC is pressing for at least three companies to offer the so-called “freemium products”. The software companies, however, appear reluctant to commit. Perhaps because they currently have no information regarding the number of people likely to use such a product. HMRC had also made clear it is not prepared to fund such products.
It is clear that HRMC has numerous challenges and obstacles to overcome. It has to select, ‘rigorously’ test and implement making tax digital software in time to meet its self-imposed deadline. We can expect regular developments on this. Representatives of the accountancy profession are meeting with the Lords committee, to give evidence on whether taxpayers are ready. We will keep you up to date.