In 2015 the Government announced its commitment to bringing our tax system into the 21st century by introducing digital technology and dispensing with the annual tax return. The new system would involve digital quarterly reporting with a view to making tax simpler and easier to manage for the taxpayer. The Financial Secretary to the Treasury, Jane Ellison MP, has said that the new tax system will help businesses put “people and profit, not paperwork, first.”
Over the past 18 months consultations have been taking place to establish exactly how HMRC are going to implement the changes and what effect it will have both on the Treasury and taxpayer. The Federation of Small Businesses (FSB) says that, following what it calls “real dialogue with the business community”, HMRC have listened to their representations and have announced the following considerations:
- Landlords and businesses with a turnover of less than £10,000 to be exempt from digital reporting and quarterly returns.
- The introduction of quarterly digital updates for other small businesses to be deferred.
- Reporting to be based on a cash accounting scheme, whereby tax is paid on the money a business actually receives, rather than on invoices raised.
- Help, both practical and financial, to be made available to ease the transition to digital accounting, but where a business cannot make the move, for whatever reason, it will not be forced to do so.
The FSB has welcomed the announcement and estimates that around half of Britain’s 5.4million small businesses could now be outside the scope of the initial moves into digital accounting. The consultations are on-going, but it is hoped that the new digital tax system will be in place by 2020.
Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.