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In the spring, we published a newsletter that outlined the policy objectives of the Government investing £1.3 billion into HM Revenue and Customs to transform the UK into one of the most digitally advanced tax administrations in the world and how it would impact you.
Over the summer, HMRC published the six consultation documents and invited responses by 7th November 2016. Since then, CooperFaure has been actively engaged with both HMRC and software providers and, as a result, thought it was timely for an update.
By 2020, most businesses, self-employed people and landlords will be required to keep track of their tax affairs digitally and to update HMRC at least on a quarterly basis through their digital tax account.
The HMRC plan is to phase this in by starting with Income Tax from April 2018 then VAT from April 2019 and, finally, Corporation Tax from April 2020. This seems perverse and it would be far more logical to start with the largest incorporated businesses, who invariably would hold records digitally on their accounting software, and work down.
Setting aside the natural scepticism of the HMRC being able to deliver such an ambitious IT project to time, the course is set.
In practise, this means that almost everyone that currently completes a Self-Assessment Tax Return will be the first to be impacted.
There are some specific exemptions in the consultation:
However, in a significant move, the consultation is proposing a deferral to April 2019 for smaller self-employed businesses and landlords and is asking for feedback on the level of this deferral threshold. Our view, that chimes with the vast majority of the accountancy profession, is that the deferral threshold should align with the VAT threshold.
It seems frankly ludicrous to ask a sector that currently is not required to have any online engagement with HMRC to be the trailblazers in implementing a completely new reporting system. However, despite the logic, whether setting the deferral level at £83,000 is anyway in line with HMRC thinking remains to be seen.
Self-employed businesses and landlords will need the tools to enable them to file digitally in a prescribed manner. Unlike with the current Self-Assessment Tax Return or RTI-compliant payroll, HMRC will not be providing free software for Making Tax Digital.
Instead, they are looking to the software providers to make available free software for the smallest of businesses as part of a basket products catering for the wider market. It seems, at best, the free software will only deliver the specific HMRC requirements, so some other form of bookkeeping software will be necessary to run in tandem.
As a result, for self-employed businesses and landlords, one logical conclusion could be to incorporate their businesses and automatically set a deferral at least to April 2020.
In the 2015 Autumn Statement, Making Tax Digital was lauded as a reform targeted to reduce the costs to business of tax administration by £400 million by the end of the 2019-20 tax year.
The reality is that asking a business to report at least four times a year rather than once and being required to do so on a proprietary software can only add to the administrative burden and cost. Indeed, for more complex businesses, there will also be an ‘End of Year’ filing to review the four quarterly returns and make any necessary accounting adjustments or claim any reliefs and allowances not able to be included in the quarterly returns.
This has been recognised in the consultation which asks the questions “What level of financial support might it be reasonable for the government to provide towards investing in new IT, software or training?”, “What costs might you expect your business to incur in moving to the new regime?” and “Do you expect that your business will incur additional on-going costs as a result of these changes?”.
We urge every stakeholder to make their voice heard and take part in the HMRC consultation here. These questions fall under the ‘A: Bringing business tax into the digital age’.
Despite the Brexit effect and all the concerns and misgivings, we believe this tax revolution will happen as it is ultimately part of a process to accelerate the collection of business and personal taxes.
At CooperFaure, we are have already implemented accountancy solutions to enable our clients to thrive in the digital age. We will also be participating in alpha testing with software providers and private beta testing with HMRC, that will enable us to keep you fully informed on every step of the journey.
We anticipate that the 2016 Autumn Statement on Wednesday 23rd November will include draft legislation. At CooperFaure we will be providing a live Twitter Feed on @cooperfaure together with digest and detailed newsletters on the day.
For the first time, on Thursday 24th November, we will be hosting a Free Webinar between 1pm and 2pm looking at the impact on business, the contractor and the property investor and answering your questions.
As well as expert advice and a free copy of the presentation, you can ask that nagging question in our Q&A session. As ever, places are limited so to register and avoid missing out, please click here.
In the meantime, if you like any further information, please let email us at tax@cooperfaure.co.uk.
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