Government responds to small business tax petition

THE GOVERNMENT has given an official response to an online parliamentary petition started less than three weeks ago, pledging that “Making Tax Digital will not mean ‘four tax returns a year’.”

The response follows hefty criticism of the Government’s plans, which has manifested in more than 103,000 signatures to a petition to ‘Scrap plans forcing self employed and small business to do four tax returns yearly’.

The subject should now be debated in the House of Commons, with a date to be scheduled by its Petitions Committee.

The change, buried in the detail of the Government’s Autumn Statement, is part of HMRC’s transformation to a fully digital tax service. By 2020, all business taxpayers will provide their tax information to HMRC via their digital tax account.

The Government’s response to the petition continued: “Quarterly updates will largely be a matter of checking data generated from record keeping software or apps and clicking ‘send’.

“These reforms will not mean that businesses have to provide the equivalent of four tax returns every year. Updating HMRC through software or apps will deliver a light-touch process, much less burdensome and time-consuming than it is today.”

It added: “In most cases, little or no further entry of information will be needed. It will be much quicker to complete than the current tax return.”

The changes will rely on businesses, self-employed people and landlords using software or apps that connect securely to their digital tax account. The government has now said that it will ensure free software products are available.

Here’s how HMRC has said the quarterly updates will be “fundamentally different” from filling an annual tax return:

• Businesses will have access to free record keeping software or apps that can connect securely to their digital tax account.

• Quarterly updates will not involve the complexity of a full tax return – the updates will be generated from existing digital business records.

• In-year updates will not be subject to the same sanctions for lateness or inaccuracies as apply now to the year-end position – HMRC will consult during 2016 on what sanctions might be appropriate for a more digital tax administration.

• Business owners will receive a developing in-year picture of their tax position, giving more certainty over their tax bill, rather than being “caught out” by their tax bill when it arrives.

Paul Brown, tax partner at accountancy firm HURST, said: “HMRC expects these businesses to use software on their computer, tablet or even smartphone, to maintain their accounting records and automatically transmit the required data.

“HMRC seems to be overlooking how potentially complex the tax affairs of even relatively small business can be. Even at its most basic level, the question of whether a particular expense can be offset against a company’s tax bill can be one which exercises the mind of even the most skilled and experienced tax professionals.”
Brown also questioned whether the change will even work.

“HMRC’s track record on rolling out new systems is not the best, as those who have suffered the pain of real-time information for payroll will attest.
“The heartening thing here is that HMRC does appear to have built in a reasonable lead time to roll out the system, but even then two years does not leave long to develop what is potentially a complex system and make it ‘simple’ for taxpayers”, he said.

HMRC’s outlining document ‘Making tax digital’ sets out how HMRC’s digital future will be achieved by 2020 and can be read here .

The online petition, along with the Government’s full response, can be viewed here .

Business view

For those who employ an accountant once a year, an increase in costs seems inevitable and, no matter how little, any extra time spent on tax compliance is time taken away from the business.

Based in Sale, Joe Gardner has been a self employed freelance weddings, corporate and events photographer for nine years and set up a limited company three years ago.Joe Gardner

Admitting that when it comes to business administration, “organisationally, I’m a little haphazard”, he employs an accountancy firm to handle his tax return and pays around £850 a year.

“[It] sounds a lot now I’ve added it up…[but it] seems a good idea as I don’t fancy being able to tackle a tax return myself,” he said.

Gardner has “finally embraced the likes of Excel” but still spends a couple of days each year gathering all the necessary information for his accountant.

He expects that any level of additional work by his accountant on his behalf would result in increased fees but says it is a cost he would have to bear – and probably pass on to clients.

“I’m sure I’d still use an accountant regardless of the increased costs, as again I wouldn’t fancy my chances of tackling the more frequent returns myself.”

He added: “This would also take up more of my time which has a negative impact on my work and how much I could take on.”