The government has curbed the reach of their “Making Tax Digital” initiative which would have seen every small business in the country linking their bank accounts to HMRC and filling out quarterly tax returns.
The aim was for HMRC to snoop on your bank account and attempt to fill out your tax return for you and the original aim was to go digital by 2018. Now it’s accepted that small businesses turning over less than £85,000 per year will stick with the annual tax return, at a stroke cutting their accounting work by a quarter.
Only businesses with a turnover above the VAT threshold will have to keep digital records and only for VAT purposes and they will only need to do so from 2019. Businesses will not be asked to keep digital records, or to update HMRC quarterly, for other taxes until at least 2020. All businesses will now have at least two years to adapt to the changes before being asked to keep digital records for other taxes.
“Businesses agree that digitising the tax system is the right direction of travel. However, many have been worried about the scope and pace of reforms. We have listened very carefully to their concerns and are making changes so that we can bring the tax system into the digital age in a way that is right for all businesses.”
– Mel Stride, Financial Secretary to the Treasury and Paymaster General
The Government blurb says that “Millions of businesses are already banking, paying bills, and interacting with each other and their customers online. Making Tax Digital will help businesses to get their tax bills right the first time and reduce the £8 billion tax gap resulting from avoidable errors”.
Reading between the lines I’m guessing that they’re seeing small businesses as a soft target and are less interested in SMEs getting their tax returns correct then they are in getting their hands on the billions they think are being missed. What they might be surprised at is the number of small businesses who forget about small receipts such as car parking which increasingly today can be paid by mobile and once all your bank and PayPal accounts are connected you’ll never forget to add into your expenses.
It’s estimated that some 3 million businesses will now not have to keep digital records by 2018 although the government is still keen to bring them into the digital tax regime sooner rather than later.