Small businesses to benefit from HMRC digital reforms
If you are still getting over what was, for many, the stress of the January 31st tax self-assessment deadline, a new milestone is upon us.
Already, the majority of business owners file their returns online. As part of HMRC’s Making Tax Digital initiative, now every individual and small business will have access to their own digital tax account, showing a personalised picture of their tax affairs, like an online bank account. That will give them greater insight into payments required and amounts already paid. Some 80 per cent of people who tested the system declared themselves satisfied.
Anyone who has been frustrated by HMRC’s much-criticised telephone support should also be delighted that testing is now due to start on a webchat system, allowing taxpayers to live-chat with support officers.
But the biggest changes will come when the Revenue begins requesting more frequent updates than the current annual return. By 2019, HMRC wants to receive updates from most self-employed people at least quarterly.
This has sparked concern. But it need not have. The change does not amount to four tax returns a year, nor the complexity or anxiety that go with it. Instead, HMRC will only require very lightweight regular reporting, often submitted automatically by a range of online services and apps that will be in the market, many of them free, as well as HMRC’s own.
HMRC’s ambitious move is not about adding burden for busy freelancers and business owners - more regularly updating your finances makes for a better business, and actually reduces, not increases, the self-assessment headache.
For many self-employed people today, their business finances are fundamentally unsatisfactory, with poor record keeping, a box of receipts handed to an overworked accountant and a nasty unexpected bill to welcome in the New Year.
This is arcane. But more frequent updating for the Revenue is a step that will mean greater predictability and more oversight for the self-employed, too, allowing them to better plan their finances and tax payments.
Much of the efficiency will come as HMRC begins automating submission of information you currently have to file yourself from the agencies which already hold it. From 2018, information on bank and building society interest will start to be included in tax codes, removing the need for many taxpayers to report this income separately in a tax return.
And the organisation will also consult this Spring on how it might automatically pull other third-party information, like investment income, into your account. By absolving taxpayers of the need to inform HMRC about already-available information, business owners will file tax return submissions more quickly and easily. The only people who should be worried are those who purposely fail to declare certain earnings information today.
That means the information HMRC will require quarterly will be far slimmed-down from today’s tax return tome, with the aim to take taxpayer submissions through online accounting software by 2019.
I know there is appetite for, not just resistance to, these benefits.
For many people, change is hard. But people are about to be put in control of their accountancy for the first time. It is only incumbent on the HMRC to ensure that it can turn around its less-than-impressive track record of IT implementation in order to meet these goals.
As we approach the end of the current financial year, it might be wise for small businesses to begin 2016/17 by adopting the digital filing mindset early, either by more diligently storing monthly paperwork, updating a monthly spreadsheet or testing out one of the many compliant online services.
Freelancers and small businesses are the lifeblood of the UK economy, and any measures that get in their way of building great businesses should never be passed. Digitised taxation will have the opposite effect, so have a happy new financial year!