There could soon be a digital revolution in the way small businesses deal with tax.
Last year, the Cameron government announced plans to introduce compulsory quarterly tax updates for businesses, being phased in between 2018 and 2020. Wherever humanly possible, those returns would have to be filed digitally.
Consultation on the proposals ends in December.
The government was quick to stress the proposals would not amount to filing four tax returns a year, that there would be free software issued to businesses, and that late updates would not be subject to the same stringent penalties that late tax returns attract.
There would be a bedding-in period, the government said.
A statement added: “We also estimate that £6.5bn in tax goes unpaid every year because of mistakes made when filling in tax returns.
“These reforms will make it easier for taxpayers to maintain accurate and up-to-date tax affairs, reducing the scope for error.”
The government said businesses would be able to keep a closer eye on their tax bill throughout the year, avoiding unexpectedly large annual demands.
- Being able to use a smartphone app to update your income and expenditure – even taking pictures of receipts and storing them in your records.
- The software would also be available for tablets and desktop computers.
- The software would prompt you every quarter to file your latest, updated records.
- It would give you a figure to set aside for your tax bill every quarter.
- There would be no paper annual tax return.
The proposals caused a storm of outrage when they were unveiled in last year’s Spending Review, amid fears they will substantially increase the burden of red tape on small businesses.
The then Chancellor George Osborne announced £1.3bn to transform the way HMRC works, making it a digital leader in world tax administrations.
A petition against the move, started by one small business owner, gained more than 100,000 signatures and was debated in Westminster in January.
During the debate, Livingston MP Hannah Bardell called for a delay in the proposals which she claimed could leave small businesses facing a “perfect storm” because of software glitches, a lack of support, and cuts to the numbers of HMRC staff.
Other MPs highlighted the plight of small business owners who would face paying more fees for book-keeping or accountancy, or spending more of their time on administration, and potentially paying for software to compile and file their updates.
Self-employed and business incomes fluctuate, Morecambe and Lunesdale MP David Morris said.
He said quarterly updates should not be used as a turnover predictor for businesses for tax purposes, adding: “This must not turn into a Big Brother turnover predictor.”
The proposals would potentially mean a number of businesses keeping more detailed online records than they do at present.
Those who would be most affected would be business owners currently filing returns annually on paper forms and micro business owners who don’t have in-house staff to take up the increased burden.
Find out more about the government’s plans to make tax filing digital here.
What do you think about these proposals? Have you already moved over to use online accounting software such as Xero?