Charities have been warned that they may have to comply with Making Tax Digital regulations despite voluntary organisations being given an exemption.
Speaking at the Charity Finance Summit 2017, Phil Salmon, heat of VAT at hasmacintyre, described the regulation as “Big Brother stuff” and raised concerns over the lack of an exemption for charities’ trading subsidiaries.
The government announced earlier this year that charities would be exempt from complying with the regulation, which requires organisations to file digital tax returns every quarter, but their trading subsidiaries would not.
Salmon said it was unlikely charities would only file digital records for their trading subsidiaries, so in many cases the exemption would be ineffective.
He said: “It almost seems to me as if HMRC has said let’s let charities off but in reality you are just not going to want to maintain two separate sets of records. Almost by default I suspect the pressure will come on you to start to move into digital record keeping.”
Salmon said the regulation would enable HMRC to “digitally interrogate” accounts submitted to them, so organisations would be less able to get away with minor errors in reporting.
He said: “If you make an error and it’s below £10,000 you can just correct it, you don’t need to stick your hand up and say you have made an error whereas going forward they will be able to go into your records and see there was an error there.
“Okay it was for only £5,000 but there was an error for £5,000 the quarter before that and the quarter before that. So it is giving them far greater visibility over your internal accounting records. It’s Big Brother stuff. This really does worry me because it is 1984 stuff.”
Richard Bray, finance regulatory and taxes manager at Cancer Research UK, said there remained a “tremendous lack of clarity” over the regulation and said the Charity Tax Group, of which he is vice chair, were still in discussions with HMRC about it.
He added: “You will need software to submit the information digitally, so there will be a cost to charities. It has been confirmed that there won’t be free software.”
The Making Tax Digital proposals are due to come into force in April 2019.