Individuals' tax relief required for Making Tax Digital software costs

Failing to provide tax relief for individual taxpayers buying Making Tax Digital software is ‘manifestly unjust’, according to RSM senior tax partner George Bull, as tax relief will be made available to businesses 

There is no current model where software providers will be able to provide a free solution for taxpayers to file quarterly when Making Tax Digital is introduced. HMRC will not offer a Making Tax Digital-related filing service.

The ICAEW’s first Making Tax Digital Software Advisory Group minutes from their April meeting revealed that vendors were yet to identify a workable ‘free’ software provision. 

Businesses will be able to offset their software costs against their income, many individual taxpayers will not. However HMRC guidance states that self employed can claim expenses for:

  • computer software your business uses for less than 2 years
  • computer software if your business makes regular payments to renew the licence (even if you use it for more than 2 years)

Self employed can also claim other software as capital allowances, unless the cash basis is used.

Bull said: ‘This is manifestly unjust and we call on the government to ensure that tax relief is available for citizens who incur extra costs in meeting their tax obligations online.’

The first tranche of businesses (whose turnover is over the £83,000 VAT threshold) will begin quarterly filings from April 2018, with smaller businesses and individuals a year later.

However, the legislative process has been held up following the General Election. Bull added that parliament ‘must be given proper time’ to scrutinise the legislation which will underpin Making Tax Digital.

‘We already know from many recent tribunal decisions that the legislation, and associated HMRC practices, is creaking under the strain of the existing system,’ he added.

Bull also highlighted a recent tribunal case where a taxpayer had noted on HMRC online guidance that, for their partnership return, they ‘may have to buy’ commercial software to make the return. When he realised during the filing process that he would have to buy software, he instead filled in a paper return, past the deadline.

The tribunal upheld the penalty he incurred for late filing, but said HMRC’s statement was ‘clearly misleading’.

Report by Kevin Reed

Kevin Reed |Contributor

Kevin Reed is a freelance business and accounting writer. He is the former editor in chief of Accountancy Age....

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