The broadly stated aim of the Government’s Making Tax Digital project is to simplify tax reporting for businesses, both large and small, and bring the process of returning tax information and payments into the digital age.
That said, no doubt HMRC also has an eye on the potential long term administration savings as they continue to look for efficiency savings. Kingston Smith looks at the latest on the implementation of this initiative.
The Government has published a further six documents on its ‘Making Tax Digital’ project, and whilst there is still a lot to be resolved, the full implications of this project are becoming a little clearer.
A key plank of the proposals is that all businesses will be required to maintain their accounting records digitally, and to provide summaries of these to HMRC on a quarterly basis.
The Government has decided not to delay the project. Unincorporated businesses will therefore be in the regime from April 2018 (subject to some exceptions), with companies being brought within the regime from April 2020.
The smallest businesses will be exempt from the requirements, and the next level of businesses will have until April 2019 to join the regime. Frustratingly, however, we still don’t know which businesses will fall within each of these categories.
The key points that have now been confirmed or clarified are as follows:
HMRC is working with the software industry to ensure that software will be available to allow businesses to maintain their records and submit the summary data to HMRC. Free software will be available for businesses with “straightforward” affairs.
Business will be permitted to use spreadsheets to maintain their records (although there will need to be some kind of add-on to allow the quarterly submissions to be made).
The Government envisages that the quarterly updates can be made “at the touch of a button”, simply using the information that businesses will be maintaining digitally. These will be due within one month of the quarter-end.
Year-end submissions (containing accounting and tax adjustments) will be due either ten months after the end of the year, or by 31 January following the tax year in which the profits are chargeable, whichever is soonest.
Charities will not need to keep digital records, but their trading subsidiaries will.
There will be an exemption for those who are not able to engage digitally.
Partnerships with turnover above £10 million will not need to join the regime until 2020.
HMRC will not be able to enquire into quarterly updates figures. HMRC’s enquiry window will run when all the information for a tax year has been received and confirmed by the taxpayer to be complete and correct.
There will be a period of at least 12 months before taxpayers start to be charged late submission penalties.
An “extensive” pilot is running from April 2017, although it is not yet clear who will be in this pilot and how it will work.
The requirements to maintain digital records, and to make quarterly and year-end submissions to HMRC, are of course part of a larger project. The submitted business information will feed into individual taxpayers’ Digital Tax Accounts, and these will also be populated with other information, such as salary, benefits and bank interest.
Ultimately, the Government intends that taxpayers will have a much better grip on their tax affairs throughout the year, that the “year-end process" will be massively simplified, and that taxpayers may even want to make regular voluntary payments in respect of their tax liabilities as they arise. Time will tell how far these aims are realised!
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.