Making everyone’s tax digital – increased efficiency or administrative nightmare?
HMRC’s ‘Making Tax Digital’ report states: “From April 2018, businesses, including everyone who is self-employed and those letting out property, will update HMRC at least quarterly where it is their main source of income.”
Both the Administrative Burdens Advisory Board (ABAB) and the Federation of Small Businesses (FSB) oppose the introduction of quarterly tax returns for all the self-employed and small businesses – regardless of size.
On 5th April, ABAB published a report in response to Chancellor Osborne’s digitised tax system. It questions how well-resourced businesses are to implement the changes, how much extra administration will be involved and what costs will be incurred by the taxpayers.
The report states: “Whilst we recognise and are supportive of the need to move to digital and the potential this brings, we are disappointed with the announcement to mandate digital record-keeping and quarterly online reporting for even the smallest businesses as part of Making Tax Digital for Business.”
“Compulsory digital record-keeping and quarterly online updates is not an approach we can endorse. We are concerned that the proposals for quarterly updates will be more burdensome than they currently are with increased record-keeping and compliance costs. This will have a big impact on the smallest of businesses.”
“We would also encourage HMRC to urgently obtain a greater understanding with regard to the population of small businesses that do not have the required digital capability to engage and/or currently operate their business utilising manual (or partly manual) procedures; and develop the associated support required to enable them to engage digitally,”
ABAB has collected the opinions of over 2,000 self-employed and small businesses through an online survey. They submitted an analysis of these views and potential solutions to HMRC and are expecting a response at the end of this month from David Gauke, the financial secretary to the Treasury.
The chair of ABAB, Teresa Graham, is reported as saying: “The small businesses that are not tech savvy might struggle [with the new system] – I don’t want them to struggle four times over. We are asking HMRC how they are going to assist businesses in this transition [to digital].” She also highlighted that there needs to be resolved clarity about what ‘quarterly information’ HMRC will require, if they are not proceeding with full quarterly tax returns. This issue was debated after Paul Johnson’s (a small business owner) petition garnered over 110,000 signatures. The result of the debate saw the Treasury and HMRC both declare that the proposed digitisation would not mean 4 tax returns per year for all self-employed and small businesses.
HMRC tax digital benefits moving forward
This view is supported by Mike Cherry, The Federation of Small Businesses national chair, who said: “Forcing small firms to pay for expensive digital accounting software so they must submit extra tax returns is not going to help anyone. It will simply add to the cost of doing business in the UK. When every independent body and expert is lining up to tell you to stop, slow down and think again, it might be time to take a breather and listen to their concerns.”
In a statement from a spokesperson, HMRC declared their intention to continue with the plan, saying: “We are focussed on creating a tax system that is more effective, more efficient and easier for taxpayers and we will work closely with stakeholders to address their concerns. 99% of businesses already file their corporation tax online and 98% of VAT returns are filed online.
The new digital accounts, which are not being introduced until 2018, will simply integrate the different information businesses already provide to HMRC into a simpler, streamlined system. This will reduce the burden of updating HMRC for small businesses.”
Others see the potential for a positive long-term impact in the proposals. Microbusiness ambassador for ‘Crunch’ (an online accountancy firm specialising in self-employed people) said: “Changes to the tax system always risk confusing small-business owners at first, but we believe the government’s ‘Making Tax Digital’ programme will be incredibly beneficial in the long-run. The current system is built on an outdated timetable which assumes paper-based returns. Most filing and payments happen electronically and there’s no reason the rest of the system shouldn’t follow.”
By the sounds of things, it’s not the ‘what’ – a digital tax system – but the ‘how’ that is causing most concern. Small-businesses and the self-employed need some reassurance that any new system will be manageable and that the transition period will be handled sensitively. Otherwise, the potential fines for making mistakes, increased accountancy bills and spending more time and energy on administration will completely negate HMRC’s “efficiency” and “reducing the burden” aims. What do you think?
