By Ken Maggs, Moore Thompson
HM Revenue & Customs (HMRC) has unveiled its new, ‘digital revolution’ for the tax system that will make paying tax less burdensome and cut red tape for British businesses.
It has also been announced that 1.3 million small businesses will be able to benefit from the system, called Making Tax Digital, without needing to update HMRC quarterly or keep their records digitally.
According to its announcement, Making Tax Digital will allow cash-basis accounting, which means that thousands more business owners will be able to pay tax based on the difference between money they have received and what they have paid out. This means that tradespeople, for example, will pay tax on cash received, rather than on invoices issued.
The new system will also send out prompts and alerts to help business owners get their tax correct and they can use it to get advice on tax reliefs they might otherwise miss. This will also mean greater certainty over tax bills, so businesses will not have to wait until the year-end to find out how much they owe.
According to a statement on HMRC’s site, the decision to exempt the smallest businesses and landlords from digital record-keeping and quarterly updates follows months of constructive engagement with business and agent groups.
The Government is also considering deferring digital record keeping and quarterly updating for a further group of small businesses and will explore options to assist businesses with the transition. Finally the consultation documents confirm that those who cannot go digital will not be required to.
Commenting on the announcement, a spokesman for the Federation of Small Businesses (FSB) said it means that half of the UK’s 5.4 million small businesses will not be affected by quarterly tax reporting. He added that the expansion of cash accounting, a longer lead-in time for implementation and the offer of direct financial assistance will also help.