Over the last eight months HMRC has been consulting accountants, businesses and membership bodies on their proposals. Following this consultation they’ve had more than 3,000 responses and we’ve previously written on our concerns about the potential impact on small businesses, you can read our blog on the subject from when HMRC’s digital plans were first announced here.
HMRC has now issued in-depth details on their plans to digitise the tax system through its flagship Making Tax Digital project.
Alongside draft legislation, HMRC has also published its responses to the six consultation documents issued in August 2016. After listening to the concerns of businesses and agents, HMRC has now confirmed that under Making Tax Digital:
- businesses will now be able to continue to use spreadsheets to record receipts and expenditure, which they can then link to software to automatically generate and send their updates to HMRC; this was requested by a wide range of stakeholders, particularly small businesses and the Treasury Select Committee
- free software will be available to the majority of the smallest businesses
- businesses that cannot go digital will not be required to do so
- all self-employed businesses and landlords with a turnover under £10,000 a year will not have to keep their records digitally or make quarterly updates, but can do so if they wish
- the option to account for income and expenditure on a simple ‘cash in, cash out’ basis will be extended, helping an extra 2.5 million self-employed businesses and unincorporated landlords
- charities will not have to keep their records digitally or make quarterly updates
- customers will have at least 12 months to become familiar with the changes before any late submission penalties will be applied; following feedback from respondents, HMRC will also consult again in the spring on a new penalty model
- HMRC will pilot these digital systems with hundreds of thousands of businesses before rolling them out to ensure the software is user friendly, and to give businesses and landlords time to prepare and adapt.
HMRC also confirmed that the government will need to consider further issues, such as the initial exemption threshold and deferring the changes for some small businesses alongside their cost, with final decisions to be made before legislation is introduced later this year.
Under HMRC’s plans to move recording and paying tax online, most businesses, self-employed people and landlords will be able to keep track of their tax affairs digitally and update HMRC quarterly by 2020. This is part of the government’s commitment to make the annual tax return a thing of the past for millions of people and businesses.
HMRC’s ambition is that this will help businesses steer clear of errors – reducing the £8 billion a year cost to the public purse, get their tax bills right first time, and give them a clearer view of their tax position as they go through the year. Reducing the amount of avoidable errors will also reduce the cost, uncertainty and worry that businesses face when HMRC is forced to investigate them.
HMRC has committed to continuing to work closely with stakeholders, including small businesses and agents, to ensure their views are reflected in the development of making tax digital.
If you’re a business owner and have any concerns about communications with HMRC, particularly if it relates to an HMRC investigation, the Bedrock team can assist.
