Many of our farming clients prefer to maintain manual cash books to record their business transactions and VAT. Indeed many of our non-farming clients also opt for a simple cash book over computerised records.
The government are not in favour of manual recordkeeping and have issued six consultation documents outlining their plans to ‘Make Tax Digital’. This proposal would represent the biggest change to UK taxation for unincorporated businesses since Self Assessment was introduced in 1996.
A summary of the main points from the consultations is as follows:
- From 2018 digital recordkeeping for unincorporated businesses (partnerships and sole-traders) and landlords will become compulsory. Certain exemptions may apply for the smallest businesses (turnover < £10,000) or for people who are unable to use digital tools.
- The consultation includes options to simplify tax for unincorporated businesses, including changes to the existing basis periods, extending the ‘cash basis’ accounting to larger businesses and reducing reporting requirements. Cash basis accounting is set to be extended to unincorporated property businesses as well.
- The proposals include a requirement to submit quarterly online updates to HMRC within one month of the quarter end and an end of year declaration within nine months of the accounting year end, with interest and penalties levied for late submissions and payments of tax. This is five submissions a year compared to a single self assessment Tax Return for a sole‑trader at present,
- Voluntary pay as you go arrangements are being proposed, allowing taxpayers to pay their tax in instalments – however the normal payment on account rules would still apply. Regular direct debit payments and quarterly payments on account are also being considered.
- Individual taxpayers will each have a Digital Tax Account which is expected to replace the traditional Tax Return. These Tax Accounts are expected to be pre-populated with data received from third parties such as employment income (P60, P11D, etc.), income from pensions, bank interest and investment income.
- VAT submissions are expected to be aligned with Income Tax submissions from April 2019.
The above is only a brief summary of the proposals made but the clear message from HMRC is that Making Tax Digital will happen. Their view is that the proposals will simplify the tax system with a faster and more responsive service for taxpayers.
Our view? When HMRC mention ‘simplification’ we brace ourselves for the opposite!
Whilst we embrace the digital age and can see the merits to the proposals made, we expect they will cause disruption to many small businesses, particularly those who have always relied on manual recordkeeping.
The good news is that Agents will be able to make submissions on behalf of their clients. Townends offer a comprehensive VAT and Bookkeeping service to all clients which will seamlessly incorporate the new proposals. We will also be on hand to assist our clients in making the transition.
The consultation period ends on 7 November and we will continue to closely monitor the proposals and how they will affect our clients.
If you would like any further information regarding the above and how you may be affected, please do not hesitate to contact us.