Smallest businesses to be exempt from HMRC digital tax records

Written by Jenni Davidson on 16 August 2016 in News

Self-employed people and some small businesses are to be exempt from quarterly tax reporting and digital record keeping

Tax form - Image credit: PA images

Self-employed people and very small businesses are to be exempt from UK Government plans to make digital tax record keeping and quarterly reporting a requirement.

Under HMRC’s ‘Making Tax Digital’ proposals, launched in December 2015, all individuals and small businesses are to have digital tax accounts and the annual tax return will be abolished entirely by 2020.

By 2020 most businesses, self-employed people and landlords will have to use software or apps to keep their business records digitally and report to HMRC at least quarterly.


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HMRC says the aim is to give businesses better ability to manage cash flow with a real time view of what they tax they owe rather than making them wait until the end of the tax year.

The Government is keen to allay concerns that this will mean more work.

“There will be no requirement to draw up a set of accounts each quarter. This reform does not mean ‘four tax returns a year’,” said Financial Secretary to the Treasury Jane Ellison.

There was widespread concern from individuals and small businesses after the quarterly reporting plans were originally announced.

A petition called ‘Scrap plans forcing self-employed & small business to do four tax returns yearly’ was signed by more than 100,000 people and debated in parliament in January.

However, the UK Government announced there would be exemptions for the self-employed and some small businesses as it launched a consultation on the changes yesterday.

The new digital record keeping requirement and quarterly return rules will not now apply to landlords or unincorporated businesses such as sole traders, partnerships and associations that earn less than £10,000 a year.

Unincorporated businesses and landlords earning over £10,000 and up to a yet-to-determined threshold will be able to defer for a year.

The Government is also consulting on other exemptions for other types of organisation such as charities and community sports clubs.

HMRC said the decision to exempt the smallest businesses and landlords from digital record keeping and quarterly updates follows engagement with business groups.

Mike Cherry, national chairman of the Federation of Small Businesses, welcomed the decision.

He said: “The government has listened to FSB representations on behalf of small businesses up and down the UK.

“Removing small firms and the self-employed with modest turnovers altogether from the proposals will now mean that in addition to the 1.6 million small businesses and landlords that were already excluded, as a result of these changes announced a further 1.3 million small firms and landlords will no longer be in scope.”

HMRC estimates that while around 92 per cent of those running a small business have access to the internet and use digital tools such as apps and social media in their personal lives, a smaller percentage are using them routinely for their business.

The UK Government intends to make free digital tools available for the smallest businesses with the simplest tax affairs.

For other businesses, HMRC says that well designed software will provide the information needed for the quarterly updates and, depending on the package, they may be able to do record keeping as part of their daily work or on the move through apps.

Edward Troup, executive chair at HMRC, said: “Making Tax Digital represents very significant change. It will bring the tax system into the 21st century and help make HMRC one of the most digitally advanced tax administrations in the world.

“Going digital will abolish the annual tax return as we know it by 2020, replacing it with a personalised digital service through which taxpayers will be able to send and receive information to HMRC at the click of a button.

“There is still a lot to design and develop, and it’s important that we do this hand-in-hand with our customers and their representatives; these consultations are the next step in this process.”

The Making Tax Digital consultation runs until 7 November.

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