Following a consultation period, HM Revenue and Customs have now released more information regarding the changes to self assessment under their new “Making Tax Digital” project.
Some of the more significant details are:
- Receipts and expenditure recorded on spreadsheets can be linked to HMRC software.
- Free software will be available to smaller businesses.
- The cash accounting system of reporting will be extended.
- Charities will not be obliged to take part in quarterly reporting.
- In the first year, a 12 month period of grace will be allowed before late submission penalties are applied.
Businesses and buy-to-let landlords with a turnover of more than £10,000 pa will be expected to submit their financial information quarterly, the new regime to be rolled in from April 2018. A spokesperson for the Revenue optimistically suggests this will help businesses avoid errors on returns and cut down the need for compliance investigations.
For many small businesses, however, the prospect of transmitting their financial information on-line every 3 months is not one they welcome. Recent research carried out by HMRC themselves showed that over 40,000 businesses had concerns about having to comply with quarterly reporting.
The Federation of Small Businesses (FSB) also warns that more vulnerable taxpayers will incur additional costs in software and/or increased accountancy fees and that HMRC’s plans to implement the system in 2018 is total “fantasy”. A survey undertaken by 1-Tap Receipts has even shown that a staggering 97% of self-employed taxpayers who took part were unaware of the proposed changes to the tax system.
With these factors in mind, the FSB is supporting a recommendation by the Treasury Committee for quarterly reporting to apply only to businesses with a turnover in excess of £83,000 (in line with the VAT registration threshold) and to be phased in gradually from 2020. This would give the Government a chance to re-think their proposals and tax-payers time to consider their options going forward.
Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.