During last year's Spring Budget the chancellor, George Osborne announced his vision to Make Tax Digital. Although momentarily picked up in the press this ground-breaking piece of news has in my opinion fallen on deaf ears with tax payers. The changes proposed are set to be what could only be described as the most significant in a considerable period of time.
The implementation of Making Tax Digital will make the UK one of the most digitally advanced tax administrators in the world, with the Government set to net an additional £600m worth of revenue a year by the end of parliament.
So what is Making Tax Digital? Put simply - instead of submitting one annual Tax Return each year each tax payer will be asked to submit a quarterly report. HMRC suggest in their recent document Making Tax Digital – Myth Busters that this will “deliver a system that is more effective, more efficient and easier for taxpayers.”
They also suggest that the system will also reduce the business burden by £400m a year although most taxpayers I have spoken to see the implementation of quarterly reporting as an additional burden on their business resulting in additional costs.
With the recent popularity of cloud accounting software packages such as Xero (which allow taxpayers to prepare and view their records online every hour of every day from any mobile device in the world - digitally) HMRC believe the information will be available to submit quarterly reports.
And for those tax payers who do not have access to digital accounting software, - HMRC have pledged to provide free software and apps.
You may be thinking to yourself this sounds all well and good but such a significant departure from the old system will take many years to implement, then you will be surprised. HMRC are working to a time frame of implementing the first quarterly report by December 2018. Although the new system is to be phased in with small businesses and landlords been affected first, VAT businesses and those paying Corporation Tax will be drawn in by 2020.
This may sound RUSHED and many professionals are also of that opinion, as there are many points to be considered such as tax payment dates, filing dates and penalties amongst some of the obvious.
There are currently five consultations in place and these are due to end in the spring, by which time there should be a clearer understanding of how the new proposals will be put into action.
Some taxpayers have suggested that Making Tax Digital is simply a way to speed up the collection of outstanding tax. Currently the self employed do not pay their tax liabilities until 10 months after the end of the tax year. If this is the case then there would certainly be a positive affect on the government’s cash flow position.
However, HMRC have stated, “Many taxpayers want more certainty over their tax bill and access to an in-year picture of their tax position, which their new digital accounts will provide.”
There is certainly a degree of truth in both arguments. I expect the more cynical of you will take the opinion that this will just never happen; the technology is not really there and if it is the government’s track record on delivering IT usually overruns in time scales and almost certainly financially.
On this occasion I believe it is certainly going to happen and all the stops will be pulled out to make it work. With budget cuts of 18% planned including HMRC office closures, £800m of the savings is to be used against tax evasion, and with an estimated £6.5bn worth of errors in tax returns every year, the stakes are high.
HMRC are already producing documents and even a Making Tax Digital video.
It would appear there is no escape for us as HMRC embrace digital and the way accountants prepare sole trader accounts (or what is sometimes described as shoe box or carrier bag jobs) are set to feel the changes very quickly.
Accountants will have to spend additional time educating and demonstrating the technology available to ensure all are fully compliant before the end of 2018. At Tax Matters we believe our clients are already showing an interest in changing the way they have previously provided information as many of them email or store documents in the cloud.
Clients want to talk to us about using technology and we certainly want to be talking to our clients about how the technology can make their lives simpler and lest cluttered when it comes to accountancy preparation.
If you are interested in finding out more about Making Tax Digital and/or Cloud Accounting and the benefits to your business, then please do not hesitate to contact either Jonathan Reeves or one the team at firstname.lastname@example.org or call 01442 828006.