Plans for a new, streamlined and efficient tax system will be published today, with HMRC and the treasury promising more clarity and less red tape for small businesses.
The Federation of Small Businesses said the plans were “incredibly important” in the effort to make the tax system less onerous for smaller businesses.
HMRC is putting six new consultation documents out as part of its Making Tax Digital initiative, which aims to simplify the tax system and make assessment and payment quicker, easier and cheaper for SMEs.
Under the scheme, 1.3 million small businesses will be able to benefit from Making Tax Digital without needing to update HMRC quarterly or keep their records digitally. The scheme has drawn criticism from some quarters, with concerns over some businesses’ ability to roll out the necessary software, as well as increased compliance costs
HMRC says the main benefits of Making Tax Digital will include:
- Cash-basis accounting so that thousands more will be able to pay tax based simply on the difference between money they have taken in and what they have paid out, meaning tradesmen will pay tax on cash received rather than invoices issued
- Prompts and alerts to help businesses get tax right and giving advice on tax reliefs they might be missing out on
- Greater certainty over tax bills so businesses don’t have to wait until the end of the year to find out how much they have to pay.
‘Transparent and accessible’
Financial Secretary to the Treasury, Jane Ellison MP, said: “We are committed to a transparent and accessible tax system fit for the digital age, and Making Tax Digital is at the heart of these plans. This new system will make the UK’s tax administration more efficient and straightforward, and will offer businesses greater clarity when it comes to paying their tax bills.
“By replacing the annual tax return with simple, digital updates, businesses will be able to concentrate on putting people and profit, not paperwork, first.”
1.3m businesses taken out of quarterly reporting
Meanwhile, Mike Cherry, FSB National Chairman, welcomed the plans, saying “Today’s announcement on quarterly tax reporting proposals is incredibly important. Together with the Chief Secretary David Gauke MP, we have seen real dialogue with the business community. The government has listened to FSB representations on behalf of small businesses up and down the UK.
“Removing small firms and the self-employed with modest turnovers altogether from the proposals will now mean that in addition to the 1.6 million small businesses and landlords that were already excluded, as a result of these changes announced, a further 1.3 million small firms and landlords will no longer be in scope. This means that half of the UK’s 5.4 million small businesses will not be affected by quarterly tax reporting. The expansion of cash accounting, a longer lead-in time for implementation and the offer of direct financial assistance will also help.
“FSB will be submitting new evidence into the consultations announced today, and look forward to working with the government and contributing to its Making Tax Digital agenda.”
Edward Troup, executive chair of HMRC, said: “Making Tax Digital represents very significant change. It will bring the tax system into the 21st century and help make HMRC one of the most digitally-advanced tax administrations in the world. Going digital will abolish the annual tax return as we know it by 2020, replacing it with a personalised digital service through which taxpayers will be able to send and receive information to HMRC at the click of a button.
“There is still a lot to design and develop, and it’s important that we do this hand-in-hand with our customers and their representatives; these consultations are the next step in this process.”