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HMRC bends to businesses for Making Tax Digital

01/02/17

Department outlines arrangements in response to consultation on its digitisation programme – but fails to convince critics over timescale

HM Revenue & Customs (HMRC) has outlined several concessions to businesses in its Making Tax Digital programme, attributing the move to a consultation process in which it received more than 3,000 responses.

It has highlighted the arrangements – including the provision of free software to small firms and exemptions from some requirements for charities – with the publication of the draft primary legislation to be included in this year’s Finance Bill.

It comes after a series of public criticisms of the department’s flagship programme to digitise its operations. In January, the House of Commons Treasury Committee warned that the timescale for the programme was unrealistic, following an earlier critical report by the National Audit Office; in November accountancy association UK200Group said it would impose a burden on businesses forced to adopt new software; and earlier the Federation of Small Businesses (FSB) said it would cost the average small company an extra £2,770 a year.

Reducing burdens

HMRC said it has responded to the concerns expressed by businesses and agents during the consultation, which was launched in August, and outlined a number of details claimed to reduce the burdens:

  • Businesses can continue to use spreadsheets to record receipts and expenditure, which they can then link to software to automatically generate and send their updates to HMRC. It said this was requested by a wide range of stakeholders, particularly small businesses and the Treasury Select Committee.
  • Free software will be available to the majority of the smallest businesses.
  • Businesses that cannot go digital will not be required to do so.
  • All self-employed businesses and landlords with a turnover under £10,000 a year will not have to keep their records digitally or make quarterly updates, but can do so if they wish.
  • The option to account for income and expenditure on a simple ‘cash in, cash out’ basis will be extended, helping an extra 2.5 million self-employed businesses and unincorporated landlords.
  • Charities will not have to keep their records digitally or make quarterly updates.
  • Customers will have at least 12 months to become familiar with the changes before any late submission penalties will be applied. HMRC will also consult again in the spring on a new penalty model
  • The department will pilot the digital systems with hundreds of thousands of businesses before rolling them out to ensure the software is user-friendly, and to give businesses and landlords time to prepare and adapt.

It also acknowledged the need to consider further issues, such as the initial exemption threshold and deferring the changes for some small businesses alongside their cost. The final decisions on these will be made before the legislation is introduced later in the year.

Transparency and accessibility

Jim Harra (pictured) HMRC’s director general, customer strategy and tax design, said: “We are pleased that there was a broad welcome for the principle of Making Tax Digital and HMRC developing a transparent and accessible tax system fit for the digital age.

Jim Harra“The appetite for digital services is growing and traditional paper based processes make no sense in the 21st century where the vast majority use digital services.

“HMRC will continue to work closely with stakeholders, including small businesses and agents, to ensure their views are reflected in the development of making tax digital.”

Despite the changes, the FSB made clear that it was not impressed, saying that the timetable is “now a total fantasy”.

Need for rethink

Its national chair, Mike Cherry, said: “Today, small businesses were expecting clarity around how to meet their tax obligations from 2018, and they still do not know what they will face.

“Government now needs to take this time to rethink the proposals.  To make them work, FSB will push for the removal of businesses with turnover of less than £83,000 from the scheme, and for a phased approach that starts initially with the largest firms. 

“We will also press for implementation in 2020, not next year. As small business owners plan their approach to Brexit, rushing in mandatory quarterly tax reporting is a headache they just don’t need.

“We will be raising this with ministers at every level, bringing together a broad alliance across the business community, accountancy and tax bodies.”

He added that the FSB will also work with Parliament’s Treasury Committee to keep up the pressure.

Image from GOV.UK, Open Government Licence v3.0

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