Making Tax Digital (MTD) – Record keeping, documents, audit trail

Posted by Ian Gilmour


It has always been important that adequate business and financial records are produced and maintained for tax purposes whether that be for compliance or planning. Never more so than now.  With the prospect of Making Tax Digital and the new criminal offence of failure to prevent facilitation of tax evasion it is paramount that financial records are kept to a high standard and that the financial decision making process in organisations is properly documented.

Failure to meet the standards required may have serious consequences and the role of the lawyer and tax adviser will be increasingly demanding in both advising and protecting clients as well as protecting their own interests.

Making Tax Digital (MTD)

The intention to introduce the MTD scheme was announced in the March 2015 Budget. Sufficient time for implementing the policy is necessary and the original schedule has recently been changed to give a longer run in to enable businesses and individuals the opportunity to make suitable arrangements and prepare as well as allowing the government and software companies to accommodate the technological requirements. There may be further moving of deadlines but one thing is certain, MTD is happening.

Annual tax returns will be a thing of the past and there will be a new system of quarterly reporting under MTD instead. There will be a transition whereby various pilot schemes are brought in culminating in the new arrangements. Payment dates of tax due are not changing and the scheduler system of direct taxes which has been broadly unchanged since 1799 will remain.

Digitalisation means that HMRC will create tax return information for the client from feeds received from employers, banks and others.  Lawyers may need to provide tax reports to clients to facilitate quarterly reporting by taxpayers. That would presumably include details of capital transactions as well as details of interest credited to client accounts. HMRC will issue tax statements for checking by tax advisers and their clients. These provisions will apply as much to corporations and unincorporated businesses as individuals.

It is anticipated that tax practitioners will shift their emphasis away from compliance and more towards advice and planning with a likely increase in tax investigation specialists. Law firms have an advantage over others as they are much less reliant on compliance work.

VAT will be the first tax to be subject to MTD in April 2019 as quarterly reporting will conveniently link with quarterly VAT Returns. Records will be digital which is not necessarily the case currently and the use of spreadsheets will be possible.

Quarterly reporting for Income Tax and Corporation Tax under MTD will apply from April 2020 at the earliest and will apply to businesses and landlords with turnover above the VAT registration threshold (currently £85,000). Other businesses and landlords may adopt MTD on a voluntary basis.

There will be exceptions for businesses and landlords with a gross income of less than £10,000 which will be exempt from MTD as well as non-trading charities and the ‘digitally excluded’.

4 Key Foundations

HMRC state that the 4 key foundations of MTD are:

  • Better use of information available
  • Tax in real time
  • A single financial account
  • Ability to interact digitally with taxpayers

Agent access:

Agents will only be able to access underlying data through authorised software. They will not be able to access clients’ tax accounts.

It remains to be seen what role the lawyer will play following the introduction of MTD but it is certain that there will be a greater need for client advice and assistance in meeting their obligations as well as performing an integral part in both reporting information to HMRC directly and providing details to taxpayer clients to facilitate quarterly reporting.

For further information and advice about tax, contact Ian Gilmour on 01227 763939 or email



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