By Phil Moss, Partner
020 7490 7766
You may have read our article in the winter edition of Fine Lines regarding “Making Tax Digital” regarding the replacement of the Self-Assessment tax return with real-time quarterly filing for all businesses.
To recap, HMRC announced in the March 2015 budget their ambitious plans to bring tax compliance fully online and the proposal is that from April 2018 every person will have a Personal Tax Account and every unincorporated business (including individuals with a rental business) a Business Tax Account. Companies will not come under the system until 2020.
The impact of Personal Tax Accounts promises, in time, to enable sources of income to be pre-populated by HMRC, so that the tax return is replaced by an online confirmation process by the taxpayer or their agent.
With quarterly filing, in particular, the impact of Business Tax Accounts is likely to be far more significant.
HMRC released their responses to the consultation document on 31 January 2017. However many of the questions remain unanswered. Here’s what we know so far:
- The deadline will be one month from each quarter end and HMRC will initially also have no powers to enquire into quarterly updates.
- Any business or landlord receiving income of over the de-minimis threshold (see below) will be required to file quarterly electronic submissions, perhaps by a simple export from their book-keeping software.
- Annual accounting adjustments do not need to be made quarterly, although they must be included by the final year end declaration, the deadline for which is 31 January or ten months after the accounting year end, whichever is sooner. Corrections for a previous error can be included in the next quarterly update.
- HMRC are confident that free software will be available from third party suppliers for taxpayers with the simplest affairs, e.g. Unincorporated, no employees, below VAT threshold. They will also maintain a register of all third party MTD compatible software.
- Taxpayers do not have to scan all paperwork but simply maintain an electronic record of the transactions. The data can be stored in excel on the desktop rather than in a cloud-based software.
- Partnerships will be responsible for updating profit shares for the partners although these will be optional for quarterly reports and mandatory for the year end. Those with a turnover over £10m will not have quarterly reporting until April 2020.
- Subcontractors will report their own income quarterly rather than the contractor (who already separately report payments on a monthly basis).
- Quarterly payments of tax will be optional and payments in advance will be refundable subject to any outstanding liabilities and upcoming amounts due within seven days (if any previous late payments).
This has left some important questions unanswered. Here’s what we still do not know:
- The original consultation document suggested there would be a turnover threshold of £10,000 for entry into quarterly reporting although this figure has not been confirmed. It also suggested the start date for smaller trades would be deferred by a year to 2019. We do not know if this will happen or what level of turnover would be considered small.
- Reforms will be made to accounting and basis periods and taxpayers who do not have a yearend that matches the tax year may wish to change. HMRC have not clarified how they will tackle this to ensure fairness for all taxpayers.
- HMRC have confirmed there will be no late filing penalties for the first 12 months and have promised further clarification on future penalties, interest and surcharges.
- HMRC have confirmed they are seeking to obtain information from third parties to populate the tax accounts but have not confirmed which areas they are prioritising. This could include banks, stockbrokers, and letting agents.
HMRC proposed to start a ‘public beta’ program (covering individuals with one sole trade and all UK property income), which will effectively allow people to adopt a system a year early - although it is currently unclear whether the required software will be available in time.
It is clear that software providers have a key role in implementing HMRC’s proposals, although it is our understanding that to date they have been as frustrated as tax agents and advisers with the lack of detail forthcoming from HMRC. We will be monitoring the situation closely and publishing further blogs as and when more information is available.
If you have any questions relating to the above, please speak to your contact partner or to Phil Moss.