The way your business reports to and records inform-ation with HMRC is set to change under the govern-ment initiative Making Tax Digital. A series of 6 consultations published by HMRC on 15 August 2016 detail plans on how HMRC propose to make tax digital and to simplify the tax system. The consultations look at the following areas:
- How digital record keeping and regular updates will operate – this considers compulsory digital record-keeping and quarterly ‘updates’ to HMRC and an End of Year declaration within nine months of the end of the period of account.
- Options to simplify tax for unincorporated businesses, including changes to basis periods, extending cash basis accounting and reducing reporting requirements for unincorporated businesses.
- Extending cash basis accounting to unincorporated property businesses.
- Voluntary pay as you go arrangements, where taxpayers can pay what they want when they want, subject to the normal payment on account rules. Regular direct debit arrangements and quarterly payments on account are also being considered.
- Changes to tax administration, including changes to the enquiry regime, penalties for late submission of quarterly updates and End of Year declarations and also the late payment of tax.
- How HMRC will make better use of the information which they currently receive from third parties, including updating of PAYE codes more regularly and coding out of bank interest via PAYE.
The deadline for making responses to the consultations is 7 November 2016 and if you would like full details they can be found on (www.gov.uk/government/collections/making-tax-digital-consultations).
There is insufficient space here to detail every element of the proposals, however, some of the main implications and timescales for making tax digital are considered as follows:
From 6 April 2018 unincorporated businesses/landlords will be required to provide a quarterly update to HMRC for their income tax obligations unless their gross annual income is below £10,000 (amount to be confirmed). Businesses/landlords with gross annual income greater than £10,000 (to be confirmed) but less than an amount yet to be confirmed will be able to defer quarterly reporting for one year.
From 6 April 2019 all businesses incorporated and unincorporated will need to report quarterly for their VAT obligations.
From 6 April 2020 all incorporated businesses will need to report quarterly for their Corporation Tax obligations.
HMRC has indicated that it will not accept spread-sheets as a form of digital record keeping and reporting. If not used by your business already then a form of software or reporting app will need to be acquired. HMRC are proposing that some of these be made freely available for smaller businesses but others will need to purchase appropriate software.
The reporting deadline is likely to be one month following a business’ quarter end. In terms of entering the regime it is likely there will be an option of the first accounting period commencing after 5 April 2018 or the first full quarter commencing after 5 April 2018.
There is no doubt that people have their own opinions on whether or not this is a good development. Some may see it as a great advancement for tax administration in the digital age where we can make tax reporting more efficient. Others take the view that it will add another burden on business that will increase the time and cost required to administer with no real evidence of any benefit to the business. You will have your own opinion on the proposals but one thing is apparent, this change will be introduced and is something to be prepared for.
How can we help?
As a practitioner I know that administering and re-cording your accounting transactions through the right accounting software saves you time, money and gives you real time information on the performance of your business that will help you make the best and most informed decisions on how to improve and run your business.
As a certified advisor of Xero accounting software I can assist you with getting your business up to date and in a better position to submit quarterly reports to HMRC. For an overview of how Xero works visit www.xero.com/uk. It is in my opinion one of the best accounting software packages available on the market.
Other tax matters
If you need to register for self-assessment for the tax year ended 5 April 2016 the deadline for doing so is the 5 October 2016. If you register late there will be no penalty as long as you pay your Self-Assessment bill in full by the deadline.
HMRC indicate it can take up to 20 working days (this is usually 4 weeks) to complete the registration process. So, allow plenty of time so you can send your tax return by the deadline of 31 January for online filing.
Alternatively, if you are already registered for self-assessment and need to file your tax return why not get your tax return completed and submitted before Christmas and the New Year. It is no fun facing a tax bill in December or January.
If you are interested in discussing any of the above then contact us and see what we can do for you.