On August, 15, HMRC announced the results of the consultation process on their proposals to radically alter the tax system. The result was; another consultation! More specifically, they published a further 250 pages of thoughts on Making Tax Digital (on top of the videos, etc. already produced) with the new consultation running to 7 November 2016.
So after 6 months of taking on board the concerns and views of taxpayers, professional bodies and business organisations what did we learn? Not very much really other than HMRC seems hell bent on forcing these changes through at an alarming pace. Given that this period of further consultation won’t finish until 7 November, it is unlikely that we will see much more of significance until well into the New Year. By that time, it will be just over one year until most self-employed people and businesses subject to income tax will be required to start sending quarterly tax statements to HMRC in a digital format. Quite simply that is far too little time to prepare when at this stage HMRC are supposedly still consulting on how to introduce these drastic and wide-ranging changes.
Some groups, such as those with self-employed or rental income of less than £10,000 will not have to file quarterly returns, nor will charities, community amateur sports clubs or those who can’t engage digitally. There will be an extension of the ’cash basis’ which will allow some businesses to record their income without making year-end adjustments for things like accruals, prepayments, debtors and creditors. Consultations are also to take place on things like stock, work-in–progress and bad debts. So far so good, but these exemptions won’t apply to the majority.
For those where quarterly filing will be mandatory, failure to do so within 30 days of your allocated filing date will see the penalty regime kick in. In the same way that drivers caught speeding too often accumulate increasing penalty points, so HMRC will make you pay even more by lightening your wallet further through hefty penalties.
You will no longer have to complete the annual tax return. Instead, you will have to complete and submit your End of Year Activity (EOYA). This will need to be submitted within 9 months of the business financial year end. Sorry to be pedantic, but is this not just a tax return under another name?
At least the idea of paying tax quarterly seems to have disappeared for the moment, albeit there is a consultation document on voluntary payments. Why this is necessary we are not sure, as taxpayers can currently pay tax voluntarily in advance if they want.
We are told that the quarterly returns will simply require a record of income and expenditure and that it won’t be necessary to have this correctly adjusted for disallowable items such as private use adjustments, business entertaining or capital allowances etc. So with there being no accelerated tax payments and no requirement to submit the income and expenditure accurately it does beg the question why make any change at all?
In our view there is one simple reason, which is cost savings for HMRC, realised by transferring the burden on to taxpayers and their professional advisers. HMRC expects to make savings of £400 million per annum. A report published by the Treasury Select Committee in March, cast doubt over these figures. We leave you to judge who will benefit most from Making Tax Digital…
There are, to be fair, some worthwhile proposals envisaged in Making Tax Digital, but not many. Aside from the totally unfair process of burdening businesses and the self-employed with significant extra costs, our biggest concern is the short timescale before these drastic changes go live.
We will be making our representations by direct response to the consultation, engaging with our professional bodies and attending meetings with HMRC to express our fears and concern. Whilst it would be nice to think that our opinions and those of many others will be listened to, we fear the worst. For the moment, watch this space.