I have been looking at the implications of this and what, if anything, I need to start doing differently.
As I understand it, the primary requirements of MTD are
- keep digital records
- submission of tax return data through HMRCs API using approved software
- automated end-to-end processing from the digital records to tax return values
- 4 quarterly submissions of tax return data each tax year with a fifth and final return by Jan 31st
As far as I can tell "digital records" simply means keeping electronic records of all relevant financial transactions (such as rent received and expenses paid out). Interestingly, it does not seem to include keeping electronic copies of receipts, etc (though I pretty much do this now as a matter of course). "Automated end-to-end processing" means that manual entry of tax return values is not permissible. Once the digital records are correctly established, the values for inclusion on the tax return will be calculated by software and then submitted on to HMRC.
I'm a member of the NRLA and through it and groups like Landlordzone, I get invitations to sign up to various software packages. These claim to provide a complete landlord management package: financial record keeping, diary reminders for things like gas safety certs, keeping copies of tenancy agreements, etc, etc. A big selling point and, I suspect, motivation to develop these packages has been that they all claim to be "ready for MTD".
If I was starting up as a landlord, I might well consider using one of these packages. But I'm not starting up and I have a well-tuned process for deriving my tax return values. It is spreadsheet based, with the main element effectively reproducing and classifying the transactions of the bank account that is exclusively used to run my property business.
It has been flexible enough to cope with the changes of recent years, including the abolition of the 10% wear and tear allowance and its replacement by the actual cost of replacing domestic items, changes to the treatment of mortgage interest, including the 3 changeover years, and the rest of the cr*p that Osborne and successors have dreamt up.
I'd like, if possible, to keep my present way of doing things. I'm pretty sure that I can easily adapt it to calculate the quarterly return data. I have a well organised electronic filing system for pretty much everything else. I don't think that the time I will have to spend getting to grips with any new property management software will justify any value it might add.
The current phase of MTD is VAT. I am not affected by this, but from what I have seen, the quarterly return amounts to the submission of about a dozen values. The solutions to MTD for VAT seem to be either extensions to existing accounting packages or, where record-keeping is being undertaken using spreadsheets, through "bridging-software". Both solutions effect submission of returns via HMRC's API.
So, as this is a "practical" board, some questions.
1. Am I correct in assuming that my current spreadsheet approach is broadly compliant with the requirements for digital record keeping and end-to-end processing? If not, is there any documentation setting out the compliance standards?
2. What is the scope of the next phase of MTD? In particular, will the submission of tax return information through the next phase of MTD cover the entire tax return or will it, as I suspect, be restricted to specific pages of the self-assessment system eg Land and Property (in my case) or Self-Employment (another target group for MTD).
3. If my suspicion is correct, how will the data submitted via MTD be integrated with other income data (such as pension income paid through PAYE) since both will be required to calculate the net tax position for the year?
4. Although, I suspect it is a bit early, is anyone aware of any bridging software that is available for the next phases of MTD?
One major justification claimed for MTD is that it will increase tax revenues by eliminating keying and/or copy/paste errors. I have always been sceptical about this and have not come across any evidence that supports this assertion. I see no reason to assume that such errors by themselves will be biassed in the taxpayer's favour. While there is, perhaps, an argument that the taxpayer may be more likely to spot and correct errors in HMRC's favour than in their own, I'm not aware of any evidence quantifying this effect on tax revenues collected.