HMRC is making tax digital
Right now, HMRC is undertaking an important new initiative that will dramatically transform how businesses and other tax payers interact with the agency.
Making Tax Digital is an ambitious project with the objective of completely taking business’s tax returns online by the year 2020.
However, despite the scale of HMRC’s plans, some 43% of SMEs are unaware of the developments or what they mean to how we will submit tax information in the coming years. Of those who are aware of the plans, 86% don’t currently feel that they’ve been provided with sufficient information.
So, if you’re someone who submits tax returns, as a self-employed person or as a business owner, what do you need to know and how can you prepare for the changes ahead?
Perhaps the most fundamental change is that, rather than submitting tax returns annually, you will be expected to do so quarterly, making digital taxation more similar to the existing Pay as You Earn system. For some smaller businesses, this may come as a blow as making quarterly rather than annual payments could have a profound effect on cash flow (although there are plans to exempt organisations with under £10,000 income). For others, it may be an advantage to always know in ‘real time’ how healthy their finances are.
Additionally, HMRC has said that it will endeavour to make submitting tax returns digitally a transparent, accessible process with prompts and alerts implemented to ensure businesses stay on track. Meanwhile, the agency will also provide advice on tax relief rights that some businesses (particularly SMEs and sole traders) may not be aware of.
Of course, as you might expect, not all parties have greeted news of HMRC’s great digital project positively. It has been suggested that quarterly reporting will mean a greater drain on the often limited resources smaller businesses have at their disposal. On the other hand, as digital tax reporting and submissions are rolled out, they will require tax payers to use accounting software, which will likely reduce human error and lead to greater accuracy.
Digital taxation will also mean information is shared more efficiently between HMRC and other bodies. For example, the government agency will already hold details on bank interest charges, which are taken into account when tax returns are filed. Arguably, this will save time for those submitting returns, whether they’re doing so on their own behalf or they’re accountants working for a client.
At present, the details of the proposed plans are not set in stone. In fact, HMRC is currently in the middle of a broad-reaching consultation to canvas the views of as many people as possible. The consultation, which began in mid-August, has been split into six primary topics, for example Bringing Business Tax into the Digital Age and Business Income Tax.
Until 7th November, you can have your say on HMRC’s plans, letting the agency know your personal views and concerns about Making Tax Digital. Now’s the time to get involved, learn more and take the opportunity to share the benefit of your insight and experience with HMRC.