Legislation proposed for 2017 could save HMRC money but quadruple the reporting workload for every business in the UK. Retail expert Adam Bernstein warns that if you want to stand a chance of having your say, write to your MP before it’s too late
The latest in a long line in initiatives to speed up the tax collection process may well help cut administrative costs for HMRC, but it could quadruple the tax reporting workload for every business in the country.
It is called Making Tax Digital (MTD) and business owners have until the end of the summer to get its proposals watered down.
As anyone who runs a business will have noticed, technology is changing the way that they deal with the authorities. VAT, corporation tax returns, and the vast majority of self-assessment income tax returns are filed online these days.
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 quarterly updates on tax information from every business in the country.
Tina Riley, national KBSA chair, and owner of Modern Homes in Leamington Spa, is not happy and is hoping that many members will already have spoken to their accountants and realised that this new system will mean four times as much work.
She notes: “This proposal could have a devastating impact on the small business sector, increasing costs and forcing some to close and even causing a downturn as it makes it less attractive for people to start a small business.”
Jason Piper, senior manager for Tax and Business Law at the Association of Chartered Certified Accountants, is also concerned about both the proposals and the implementation. “Compulsory online everything for everyone is the basis of HMRC’s new Making Tax Digital proposal. It started life in March 2015 as ‘making tax easier’, but by December the detail had stared to emerge and the name had changed.”
Piper says HMRC and the minister, David Gauke, are keen to 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. 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 problem is, as Piper puts it, “even if you already keep your records online, and up-to-date, there’s still going to be an additional step. HMRC wants you to send them details of your headline financial information, probably more or less in line with what you do for VAT, so that you can be kept up-to-date with your evolving tax liability.”
The Government has said that 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. The reality may be quite different.
But the KBSA’s national chair Riley warns that it may not be so simple: “There are calculations relating to stock, work in progress, capital allowances, accruals, bad debts and much more – all requiring time, cost and effort. And reporting will need to be done four times a year.”
And Riley adds her concern that there will soon be much shorter time scales to report in than have been allowed in the past.
The problem is made worse, claims Piper, because firms will need to use HMRC-approved software for their records. He says: “We don’t yet know exactly what that software is going to look like, but we do know it won’t be just an Excel spreadsheet.”
Failure is not an option – is it?
Piper notes that none of this means that MTD is destined to fail. But he adds a caveat – there is a risk that it could. “The problem is, if it does, it’ll 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 important to remember that it’s not just HMRC that are involved in implementing this. It’s got to come from Parliament, and MPs have already debated it once. Piper strongly recommends spending a few minutes contacting their MP as well as their trade body and accountant.
Piper offers some advice: “Think carefully about what would work for you, and what might even add value to your business – planning, cash flow, even just basic record keeping – and if it’s best done online, then tell HMRC and your MP how that would work. If it wouldn’t work for you, tell them, now – because you won’t get another chance and you will be left struggling to cope.”
The KBSA says it will be alerting members to the proposals and is encouraging businesses to make their feelings known, as it will substantially increase the administrative burdens on small businesses, something that the Government has pledged to reduce.
Says Riley: “I have been invited to Downing Street twice as a small business owner to discuss the difficulties of running a small business and by far and away the message we strongly gave them was that we already have too much paperwork, red tape, bureaucracy… it is unbelievable that they can then propose something like this.”
She adds that this is set to be a contentious issue, and that any members that need more information should contact the KBSA business helpline.
Firms should remember that if they don’t react before the end of the summer, they will be left complying with whatever is passed by Parliament.
- Contact details for your MP: theyworkforyou.com/mps/
- HMRC proposals: gov.uk/government/publications/making-tax-digital