In the Autumn statement, the chancellor, George Osbourne, announced that the government was to invest £1.3 billion in introducing digital filing and quarterly tax reporting.  However, under pressure it looks like the government have listened and will exempt further very small companies. Initial intentions In the original statement the government stated that “most” businesses, self-employed people and landlords will be required to keep track of their tax affairs digitally and update HMRC “at least quarterly” via their digital tax account.  The measures were to be in phased in from 2018 to 2020.  This was to be introduced with the help of free apps, accounting software, reliance on accountants and telephone support, adding more pressure on HMRC staff answering phones. Jane Ellison, Financial Secretary to the Treasury, said: “We are committed to a transparent and accessible tax system fit for the digital age, and Making Tax Digital is at the heart of these plans. This new system will make the UK’s tax administration more efficient and straightforward, and will offer businesses greater clarity when it comes to paying their tax bills.” “By replacing the annual tax return with simple, digital updates, businesses will be able to concentrate on putting people and profit, not paperwork, first.” Ms Ellison said the small minority who genuinely cannot use digital tools will not have to do so, and the reforms will not apply to unincorporated businesses and landlords with an annual income of below £10,000. Employees and pensioners will be excluded from the changes, unless they have secondary incomes of more than £10,000 per year. Implications for businesses Presently, companies must pay the Corporation Tax due on their profits and file their accounts within 9 months of their year end. For the self- employed, the tax return for the tax year to 5^th April must be submitted by 31^st January of the following year. Tax payments are complicated and quite often there is a substantial over or under payment that needs to be addressed when figures are finalised. With the planned move to quarterly reporting, rather than waiting until the year-end to establish their tax position, companies will need to keep accurate records for their quarterly submissions. This will potentially add to administration time and costs. However, there is an upside in that more accurate and timely information may improve the understanding of the businesses and may help to monitor and improve profitability and cash flow. The need for software will become paramount as submissions will be automatic and spreadsheet accounting or “dumping” your invoices and expenses at the end of the year to your accountants will virtually disappear. Earlier this year an Institute of Chartered Accountants report found that 75% of businesses do not currently maintain their accounts electronically using accounting software. In our opinion, the government are not doing this to improve the profitability of companies, but to get better more timely information and ultimately get paid earlier. Most companies now file their corporation tax returns and PAYE returns electronically so it is not to move into the digital age as they claim. Government U-Turn Several organisations have been petitioning the government. In addition, there were also over 100,000 signatures forcing the government to debate the issue in parliament. On Monday 15^th August 2016 the government issued six consultation documents seeking views on their various proposals. They appear to have listened and relaxed the onerous requirements on some small businesses. Mike Cherry, Federation of Small Businesses national chairman, said: “Removing small firms and the self-employed with modest turnovers altogether from the proposals will now mean that in addition to the 1.6m small businesses and landlords that were already excluded, as a result of these changes announced, a further 1.3m small firms and landlords will no longer be in scope. This means that half of the UK’s 5.4m small businesses will not be affected by quarterly tax reporting. The expansion of cash accounting, a longer lead-in time for implementation and the offer of direct financial assistance will also help.” S4B Team We are Tax Consultants who can advise you on all your tax and tax planning issues. Send our team an email at [email protected] or call 01628 623444 to see how we can help your business achieve its full potential.