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Evolving tax liability

Jason Piper imageAs you will have noticed, technology is changing the way that firms deal with the authorities. There’s VAT, corporation tax returns, PAYE, and the vast majority of self-assessment income tax returns are filed online these days too.

Off the back of the broadly positive experience of implementing RTI for employers with PAYE obligations, HMRC and the government have now announced that they want to go another step further, and as well as records of employment related taxes, they want to get regular updates on tax information for every business in the country and individuals with secondary income over £10,000.

The new programme is called Making Tax Digital (MTD) and it’s going to affect many businesses including both professional and amateur landlords.

TIME IS SHORT

Taxation anxiety imageCompulsory online everything for everyone is the basis of HMRC’s new MTD proposal. It started life in March 2015 as “making tax easier” but by December the detail had stared to emerge and the name changed. HMRC and the minister, David Gauke, stress that they’ll be consulting “in detail” throughout 2016, but the timetable is fixed, and many would say too ambitious. The first businesses are going to be reporting all their tax information to HMRC online, quarterly, in real time from 2018, with landlords expressly included in the first wave. That means the legislation will have to be in the 2017 Budget, so it’ll need to have been written by the end of 2016 – realistically, well under way by late summer this year. The online tools specifically for the property sector are timetabled to start testing somewhere in the January-June 2017 window, a challenging timetable given that the legislation governing what they need to do probably won’t get Royal Assent until July 2017.

TIME CONSUMING OBLIGATIONS

We don’t yet know how they’ll manage the rollout, but it seems it will be based purely on size, not sector. The indications are they will start with the smallest landlords and moving up towards larger businesses later, with the biggest property companies last of all in 2020 or maybe even later.

HMRC wants updates on your tax info to see evolving tax liabilty.

Even if firms already keep records online, and up to date, there’s an additional step. HMRC want them to send them details, probably as they do for VAT, of headline financial information so that they can be kept up to date with their evolving tax liability. The aim is for the reporting to be ‘light touch’ – because every business in the country is expected to keep its records using apps, so that just a single touch of a button will send HMRC what they want out of the records. The reality may be quite different. Firms will need to start using HMRC approved software for their records. There’s no guidance on how that software will look, but it won’t be an Excel spreadsheet, somehow firms will need to get their figures into a format that HMRC will accept.

HMRC seem to be taking the line at the moment that since employers were able to cope with RTI, often by asking agents to file for them, small businesses will be able to cope with this. But the ask is very different this time. HMRC likes to quote proportions and percentages to show how MTD would be good for the majority. But sometimes it’s good look at raw numbers. For example, there are 490,000 small and micro businesses who don’t communicate with government online now – and would still not do so even if all other options were removed. There’s another 300,000 “can’t but would” – and a further 1.9m who are going to struggle.

FAILURE IS NOT AN OPTION

None of this means that MTD is destined to fail, but there is a risk that it could – the problem will be along the lines of “I’ve been given impossible obligations to meet and I’m being penalised for failing to meet them”.

It’s not just HMRC that is involved in implementing this. It has to come from parliament – MPs have already debated it once. The point here is that taxpayers need to write to, or email, their MP. They ought to think carefully about what would work for them, and what might even add value to the business – planning, cashflow, even just basic record keeping – and if its best done online, then tell HMRC and MPs how that would work. If it wouldn’t work, then those in positions of power must be told now – because taxpayers won’t get another chance and they will be left struggling to cope.

Contact details for your MPs can be found at http://www.theyworkforyou.com/mps/

HMRC should be posting details of what’s happening when via: ttps://www.gov.uk/government/publications/making-tax-digital

If taxpayers say or do nothing before the end of the summer they will be left complying with whatever is passed by parliament.

Jason Piper is senior manager for Tax and Business Law at the Association of Chartered Certified Accountants.

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