Making Tax Digital: spreadsheets survive as software path is outlined

Spreadsheets will be incorporated into the Making Tax Digital process, HMRC has confirmed, as it published extensive consultation responses and draft legislation for the project’s implementation

There had been widespread fears spreadsheets including Microsoft Excel would be excluded from the overhaul of the tax reporting system as HMRC seeks to modernise.

But in a softening of the authority’s initial stance, HMRC director of business customer and strategy Theresa Middleton told CCH Daily: ‘Businesses will be able to continue to use spreadsheets for record keeping but must keep to HMRC requirements, but they might need to combine the spreadsheets with some other software to clean the data.’

In the HMRC consultation response document, it stated: 'HMRC is currently working with software developers to define the minimum functionality of a free software package that would meet Meeting Tax Digital requirements.'

However, feedback from software developers has indicated that they are not yet behind the scheme to provide free software, as this is not their business model.

HMRC is adamant that the smallest companies will have to file using software, which will not be provided free of charge by the tax authority. Equally the smallest businesses, particularly sole traders with low income earnings, are unlikely to have any automated accounts software, nor would they normally require this. 

'HMRC proposes, as a minimum, that free software would allow businesses to keep digital records, generate and send quarterly updates to HMRC and complete end of year activity to ensure compliance with MTDfB requirements. It would also have arithmetical error correction, some basic level of built-in prompts and nudges, basic help functions, and be able to send information from HMRC to businesses about their tax liability.

'Given the working 13 assumption referred to above, there would be no requirement to include any functionality relating to VAT, corporation tax, or PAYE. It is important to emphasise that these are HMRC’s recommendations for minimum functionality for free software, which we would expect developers to meet, as the industry has accepted the need for free software. Software developers are of course able to offer further functionality through free software if they wish to do so.'

Testing and pilots

A year-long testing period is set to commence in April 2017, with software developers expected to work closely with HMRC to ensure that quarterly reporting – which HMRC is now dubbing ‘periodic reporting’ – software is available to trial by a wide range of taxpayers.

Middleton said: ‘We are thoroughly testing the system before it is rolled out, to make sure that it is user-friendly. We want to make sure that the testing reflects the needs and is easy to use. We are trying to oversample people with records on paper, for example.’

All software vendors will be expected to provide some form of free software for ‘the most simple businesses’, Middleton confirmed.

Co-founder and UK managing director of Xero Gary Turner said: 'One of the most challenging parts of HMRC’s original plan lay around how they intended to tackle the problem of digitising the financial affairs of millions of small self employed, sole trader and partnership businesses.

'From a software product marketer’s perspective this cohort is particularly problematic since most of these entities do not habitually use accounting software or bookkeeping software today. Today’s HMRC announcement is therefore a positive step in the right direction.'

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