Plans for a quarterly tax filing system have sparked criticism from the independent body that oversees HM Revenue & Customs for their potential impact on small businesses.
In a report published on Tuesday 5 April, the Administrative Burdens Advisory Board (ABAB) predicted that plans announced by chancellor George Osborne tointroduce a new digital tax system for the self-employed – including mandatory quarterly updates – would create a significant added burden in terms of accounting records and costs.
“Compulsory digital record-keeping and quarterly online updates is not an approach we can endorse,” ABAB said in its annual report. “We are concerned that the proposals for quarterly updates will be more burdensome than they currently are with increased record-keeping and compliance costs. This will have a big impact on the smallest of businesses.”
The Federation of Small Businesses echoed the report’s criticisms. Mike Cherry, the body’s national chairman, said: “Forcing small firms to pay for expensive digital accounting software so they must submit extra tax returns is not going to help anyone. It will simply add to the cost of doing business in the UK. When every independent body and expert is lining up to tell you to stop, slow down and think again, it might be time to take a breather and listen to their concerns.”
Teresa Graham, chair of the ABAB, says she understands from HMRC that quarterly returns might not mean full tax returns, but rather “quarterly information”. She adds: “We need to know what this information is – HMRC are going to consult on that.”
ABAB also suggested that HMRC has underestimated the educational and logistical challenges of transferring the system online: “We would also encourage HMRC to urgently obtain a greater understanding with regard to the population of small businesses that do not have the required digital capability to engage and/or currently operate their business utilising manual (or partly manual) procedures; and develop the associated support required to enable them to engage digitally,” says the report.
Graham said: “The small businesses that are not tech savvy might struggle [with the new system] – I don’t want them to struggle four times over. We are asking HMRC how they are going to assist businesses in this transition [to digital].”
But others feel that the digital returns will eventually create a more efficient system for the self-employed. Jason Kitcat, microbusiness ambassador at Crunch,an online accountancy firm for the self-employed, says: “Changes to the tax system always risk confusing small-business owners at first, but we believe the government’s Making Tax Digital programme will be incredibly beneficial in the long-run. The current system is built on an outdated timetable which assumes paper-based returns. Most filing and payments happen electronically and there’s no reason the rest of the system shouldn’t follow.”
In the Making Tax Digital report, HMRC states: “From April 2018, businesses, including everyone who is self-employed and those letting out property, will update HMRC at least quarterly where it is their main source of income.”
Small businesses are concerned that the new system will lead to more costly accountancy bills, errors and a bigger administrative burden. In January, the Treasury and HMRC denied that the change would require the self-employed to complete four tax returns a year after ministers debated the issue following a petition started by small business owner Paul Johnson that was signed by more than 110,000 people.
The ABAB’s 2016 report adds: “Whilst we recognise and are supportive of the need to move to digital and the potential this brings, we are disappointed with the announcement to mandate digital record-keeping and quarterly online reporting for even the smallest businesses as part of Making Tax Digital for Business.”
The ABAB has been collecting views from the small businessses and the self-employed through an online form. In February it published the Tell ABAB report – 2015/2016, which detailed the feedback (from over 2,000 responses) and gave suggestions for next steps.
Graham expects a response to the report from David Gauke, financial secretary to the Treasury, by the end of April.
A spokesperson from HMRC said: “We are focussed on creating a tax system that is more effective, more efficient and easier for taxpayers and we will work closely with stakeholders to address their concerns. 99% of businesses already file their corporation tax online and 98% of VAT returns are filed online.
“The new digital accounts, which are not being introduced until 2018, will simply integrate the different information businesses already provide to HMRC into a simpler, streamlined system. This will reduce the burden of updating HMRC for small businesses.”
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