As the summer holiday season starts to draw to a close HMRC have finally released the consultation documents on the changes to the tax system they plan to introduce from 2018.
For many of my clients the changes will be much reduced, as I’ll shield them from the onerous requirements that are planned.
As I operate fixed fee packages I’m anticipating that where quarterly reporting and bookkeeping is now needed this can be easily included as a reasonable upgrade for those currently on the standard package.
Accountancy fees qualify for tax relief as well, so any changes will be minimised.
Keeping records digitally
I will keep your records in the proposed limited digital format for HMRC so you just need to provide me with your records as before in whatever format is easiest for you whether that is spreadsheets, on paper, or the actual invoices and receipts.
For any people with a turnover below £10,000 it is proposed that they would be exempt from this requirement and can continue as before.
Quarterly ‘tax returns’
Rather than preparing your figures once a year we will have to update HMRC every quarter.
This will mean providing me with the information four times a year rather than just once, but I will deal with the preparation and submission for you.
End of Year return
After submitting four quarterly returns to HMRC there will be one final return required, which will confirm the figures submitted and make any year-end tax adjustments.
As with the quarterly returns, I will deal with this for you.
One thing to note is that the timescale for completing an end of year return has reduced, although this should not affect any clients. We should be able to submit the final return fairly soon after the year-end as we will have most of the figures already prepared.
At present you have from 6th April until 31st January the following year to submit a return – nearly 10 months. HMRC is proposing to reduce the timescale to 9 months.
Exemptions
As mentioned above, it is proposed that unincorporated businesses and landlords with gross income/annual turnover below £10,000 would be exempt from the new obligations.
HMRC are also proposing to defer implementation for a limited group of unincorporated businesses and landlords with annual turnover above that threshold. The deferral is planned to be for only one year.
Capital and revenue expenditure
HMRC are proposing to make changes to simplify the deductions available when it comes to capital and revenue expenditure.
This would be welcomed; I look forward to discussions on this in due course.
Pay As You Go Tax
At present you pay your tax for the year ended 5th April 2016 by 31st January 2017. There could also be payments on account towards 2016/17, due by 31st January and 31st July 2017.
HMRC are proposing that there be an option to pay your tax more regularly instead.
Whilst it is currently planned to be voluntary, if adopted it would have an effect on cash flow for small businesses who are used to the existing system and payment dates.
It has been reported that some businesses pay the tax due from future income, so they would be most affected should the changes become mandatory in the future.
I predict that mandatory pay as you go tax may actually turn out to be the case at some point, so planning ahead now will avoid any future issues should this be introduced.
Penalties and Interest
There should be no effect for my clients of any changes – as part of the service I regularly remind clients of upcoming submission and payment deadlines.
The new system is planning to introduce penalty points for those that miss deadlines, with stronger penalties for those that are deliberately non-compliant.
To give ‘customers’ time to get used to the new Making Tax Digital obligations, the consultation also proposes a period of time before sanctions are introduced.
Better use of information
As previously announced, in future it is planned that some information such as bank accounts and investments would be automatically pulled through into the tax return.
This is welcomed, however the agent and taxpayer still has to check that the data is correct before submitting the return to HMRC so is of reduced benefit and only saves a very small amount of data input time.