HMRC issues digital tax accounts consultations for businesses, self-employed and landlords



HMRC has published six consultation papers unveiling new details about its plans for Making Tax Digital (MTD).

The controversial plans to move to digital tax accounts are expected to raise nearly £1bn in additional tax revenue.

The move to online filing of tax information by all taxpayers and businesses at quarterly intervals was first outlined in the 2015 Budget and has attracted considerable concerns about the potential costs and administrative burden for companies and individuals.

Last month The National Audit Office (NAO) released a report which said that HMRC are failing to fully estimate the costs of the new system to SMEs and must veer away from over-ambition.

Consultation on the issues was set to begin in April, but has been delayed until now, even though the reforms are set to be introduced from 2018.

HMRC says it has made a number of changes to the proposed design in order to ease the transition. These include removing more of the smallest businesses from the requirement to keep digital records and update quarterly.

All unincorporated businesses and landlords with a turnover under £10,000 a year will be exempt.

In addition, HMRC now says it will delay the start of MTD for some other small businesses, to give them extra time to get used to digital record keeping and quarterly updating, and will exempt digitally excluded businesses. However, it states that it expects to deliver ‘the end of the tax return by 2020’.

The six consultations are:

  1. Bringing business tax into the digital age
    This considers how digital record keeping and regular updates should operate. It includes discussion of HMRC’s plans to release a suite of APIs to ensure business software can communicate with HMRC’s systems and consideration of the requirements of those using spreadsheets for their accounting. It confirms that they will not provide free software and consults on the possible provision of financial support for businesses who need to purchase new IT to manage the changes.


  1. Simplifying tax for unincorporated businesses
    This looks at changing how the self-employed map accounting periods onto the tax year (reform of basic period rules), extending cash basis accounting to larger businesses and removing the link to the VAT threshold, reducing reporting requirements for businesses and removing the need to distinguish between capital and revenue for businesses using cash basis accounting.


  1. Simplified cash basis for unincorporated property businesses
    This proposes to extend the cash basis for trading income to unincorporated property businesses – providing an option for landlords to be taxed on the cash basis rather than using the accruals accounting basis. HMRC says this could benefit over 2.5m property businesses.


  1. Voluntary pay as you go (PAYG)
    Under this proposal, unincorporated businesses, sole traders and landlords could make voluntary PAYG payments in respect of their income tax/national insurance contributions/capital gains tax from 1 April 2018 and to VAT from April 2019. This would also extend to incorporated businesses in respect of their corporation tax from 2020.


  1. The tax administration consultation
    This covers aspects of the administration framework needed to support Making Tax Digital, outlining more detail about what the transformed tax system will look like by 2020. It also sets out proposals to align aspects of the tax administration framework across taxes including the simplification of late filing and late payment sanctions.


  1. Transforming the tax system through the better use of information
    This consultation focuses on how HMRC will make better use of the information it currently receives from third parties to provide a more transparent service designed to reduce end of year under and over payments. From April 2017 HMRC says it will start to use PAYE information during the tax year to calculate whether the right tax is being paid and to notify taxpayers where that is not the case via the digital tax account.


  1. Overview of changes for small businesses, self-employed and smaller landlords
    A separate consultation document provides an overview of the changes which will have the greatest impact on small businesses, the self-employed and smaller landlords. This highlights what HMRC views as the most critical issues for these groups.

The consultation period runs until 7 November 2016.

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