Avid readers of HMRC press releases (and who isn’t) will be well-aware of the Government’s intention to move towards quarterly tax reporting, as part of their programme aimed at modernising the collection of tax.
The ‘Making Tax Digital’ programme has many things going for it, and some definite weaknesses, but one of the biggest controversies has undoubtedly been the heavily reported ‘Quarterly Tax Returns’.
Once the panic died down it became clear to most that what is proposed is not in fact quarterly returns (and therefore payment), but a requirement to report activity each quarter – not file a full tax return.
The intention is for most businesses, self-employed people and landlords to start keeping track of their tax affairs digitally – updating HMRC quarterly from 2018. The idea behind this is to reduce the errors which commonly occur in relation to annual tax returns and to give businesses a clearer perspective of their tax affairs in (nearly) real time.
To this end HMRC recently consulted on the plans and has now published its response.
Apparently, most of those who took the time to contribute to the consultation process were supportive. However, a number of concerns were raised. These included:
- the pace of change
- the capability of the smallest businesses and those who struggle with digital technology to adapt
- burdens on businesses
- agents’ ability to access digital services to support their clients
- data security when using third party software
As a result Revenue and Customs has published the following concessions and clarifications:
- businesses will now be able to continue to use spreadsheets for record keeping, but they must ensure that their spreadsheet meets the necessary requirements of Making Tax Digital for Business – this is likely to involve combining the spreadsheet with software (The importance of retaining the ability to keep records in this way was requested by a wide range of stakeholders, particularly small businesses)
- businesses eligible for three line accounts will now be able to submit a quarterly update with only three lines of data (income, expenses and profit)
- free software will be available to businesses with the most straightforward affairs
- the requirement to keep digital records does not mean that businesses have to make and store invoices and receipts digitally, something they were particularly concerned about
- activity at the end of the year must now be concluded and sent either by ten months after the last day of the period of account or 31 January, whichever is sooner
- charities (but not their trading subsidiaries) will not need to keep digital records
- for partnerships with a turnover above £10 million, Making Tax Digital for Business is deferred until 2020
A number of areas remain under consideration, including initial exemption thresholds and conditions under which charges could be deferred for smaller businesses. However the Government has defied numerous calls for a delay in the implementation of the Making Tax Digital programme to – as some contributors put it – avoid disaster, as thousands of firms try to cope with the switch.
HMRC will begin piloting quarterly updates from April 2017, with wider roll-out expected in the following year.
The Government’s full response can be read here: https://www.gov.uk/government/consultations/making-tax-digital-tax-administration