HMRC has published six consultation documents on implementing its strategy for ‘making tax digital’.
HMRC has published six consultation documents on implementing its strategy for ‘making tax digital’. The government announced at Autumn Statement 2015, with its ‘making tax digital roadmap’, that most businesses, the self-employed and landlords will be required to keep their business records in a digital format and provide regular updates of information to HMRC through digital tax accounts by 2020. The consultation documents confirm that unincorporated businesses and landlords with an annual income of below £10,000 will be exempted from the new obligations, as will community amateur sports clubs. Implementation will also be deferred for the next tier of small businesses, with the precise threshold still to be determined. The six consultation documents, which remain open until 7 November 2016, are summarised below (see http://bit.ly/2bhp96Y).
· Making tax digital: bringing business tax into the digital age: this is the overarching document which sets out how digital record keeping and regular updates will work in practice, principally in relation to unincorporated businesses. It is split into chapters covering the key parts of the process: acquiring digital tools; digital record keeping; establishing taxable profit; providing HMRC with updates; end-of-year activity; and exemptions. Updates of income and expenditure will contain summary data only. These updates will be quarterly, but could be made more frequently if businesses choose to do so. HMRC’s preferred approach is that all businesses should have nine months from the end of their period of account to complete their end-of-year declaration.
· Simplifying tax for unincorporated businesses: this document sets out proposals on four discrete areas for simplification. These are: (1) increasing the annual turnover limit for the cash basis, in relation to which the government is open to ‘constructive suggestions for appropriate thresholds’; (2) reforming basis periods, for which HMRC is considering an option based on accounting periods similar to corporation tax; (3) simplifying business reporting, with particular reference to adjustments at the end of a period for closing stock, profits where contracts span the period end, provisions for bad debts, and prepayments and accruals; and (4) reforming the capital/revenue divide within the cash basis, replacing the current general disallowance of capital expenditure with a more limited disallowance in relation to assets which are not used up in the business over a limited period (including a draft clause and explanatory note for illustration).
· Simplified cash basis for unincorporated property businesses: this document proposes extending the cash basis for trading income to unincorporated property businesses, providing an option for landlords to be taxed on the cash basis, rather than using the accruals accounting basis. Unlike the current rules which restrict use of the cash basis to businesses with turnover below the VAT threshold, eligibility will instead be based only on whether the unincorporated property business is carried on by an individual or partnerships of individuals.
· Making tax digital: voluntary pay as you go: this document contains proposals to provide a facility for those businesses that keep their records digitally and provide regular updates to HMRC to make voluntary payments on a ‘pay-as-you-go’ basis. These payments may be made in several ways, including at the point the taxpayer submits their update, on an ad hoc basis before the statutory due date, or on a more regular basis involving a direct debit arrangement. Payments would be allocated to the next self-assessment liability arising, as at present.
· Making tax digital: tax administration: this document sets out proposals for tax administration changes needed to support digital tax accounts, including enquiry powers, new penalty models for late filing and late payment, and alignment of interest across taxes. Amendments are needed to the existing legislation to allow enquiries into end-of-year declarations, with corresponding safeguards to prevent enquiries into regular updates. Prompts and nudge messages during the year will not constitute a notice of enquiry. The proposals would preserve the 12-month enquiry window from delivery or amendment of the self-assessment tax return. A new approach to late submission penalties would involve each failure attracting penalty points, resulting in a penalty charge only once the points reach a set level. Two proposals for new sanctions for late payment would involve either: (1) penalty interest levied on taxpayers who fail to pay in full within fourteen days of the due date; or (2) revised legislation to deliver an aligned penalty regime for income tax, VAT and corporation tax. The government plans to take a phased approach to aligning the interest regimes across the taxes.
· Making tax digital: transforming the tax system through the better use of information: this document focuses on how HMRC intends to make more effective use of third party information to pre-populate digital tax accounts, starting in October 2016 with bank and building society interest and moving to other sources of income after April 2018, as part of the government’s overall aim of removing the need for taxpayers to complete self-assessment returns after 2020. From October 2016, HMRC will start to use previous tax year bank and building society interest information to amend PAYE tax codes. From April 2017, it will start to use PAYE information during the tax year to calculate whether the right tax is being paid. From April 2018, it will include common income types in the in-year calculations of tax on a more frequent basis, starting with bank and building society interest. New sources of third party information will be explored, including from other government departments, to reduce the reporting burden on taxpayers.
The government’s plan is for digital tax accounts to apply to income tax, NICs and CGT from 1 April 2018, VAT from April 2019, and corporation tax from 2020.
HMRC has published six consultation documents on implementing its strategy for ‘making tax digital’.
HMRC has published six consultation documents on implementing its strategy for ‘making tax digital’. The government announced at Autumn Statement 2015, with its ‘making tax digital roadmap’, that most businesses, the self-employed and landlords will be required to keep their business records in a digital format and provide regular updates of information to HMRC through digital tax accounts by 2020. The consultation documents confirm that unincorporated businesses and landlords with an annual income of below £10,000 will be exempted from the new obligations, as will community amateur sports clubs. Implementation will also be deferred for the next tier of small businesses, with the precise threshold still to be determined. The six consultation documents, which remain open until 7 November 2016, are summarised below (see http://bit.ly/2bhp96Y).
· Making tax digital: bringing business tax into the digital age: this is the overarching document which sets out how digital record keeping and regular updates will work in practice, principally in relation to unincorporated businesses. It is split into chapters covering the key parts of the process: acquiring digital tools; digital record keeping; establishing taxable profit; providing HMRC with updates; end-of-year activity; and exemptions. Updates of income and expenditure will contain summary data only. These updates will be quarterly, but could be made more frequently if businesses choose to do so. HMRC’s preferred approach is that all businesses should have nine months from the end of their period of account to complete their end-of-year declaration.
· Simplifying tax for unincorporated businesses: this document sets out proposals on four discrete areas for simplification. These are: (1) increasing the annual turnover limit for the cash basis, in relation to which the government is open to ‘constructive suggestions for appropriate thresholds’; (2) reforming basis periods, for which HMRC is considering an option based on accounting periods similar to corporation tax; (3) simplifying business reporting, with particular reference to adjustments at the end of a period for closing stock, profits where contracts span the period end, provisions for bad debts, and prepayments and accruals; and (4) reforming the capital/revenue divide within the cash basis, replacing the current general disallowance of capital expenditure with a more limited disallowance in relation to assets which are not used up in the business over a limited period (including a draft clause and explanatory note for illustration).
· Simplified cash basis for unincorporated property businesses: this document proposes extending the cash basis for trading income to unincorporated property businesses, providing an option for landlords to be taxed on the cash basis, rather than using the accruals accounting basis. Unlike the current rules which restrict use of the cash basis to businesses with turnover below the VAT threshold, eligibility will instead be based only on whether the unincorporated property business is carried on by an individual or partnerships of individuals.
· Making tax digital: voluntary pay as you go: this document contains proposals to provide a facility for those businesses that keep their records digitally and provide regular updates to HMRC to make voluntary payments on a ‘pay-as-you-go’ basis. These payments may be made in several ways, including at the point the taxpayer submits their update, on an ad hoc basis before the statutory due date, or on a more regular basis involving a direct debit arrangement. Payments would be allocated to the next self-assessment liability arising, as at present.
· Making tax digital: tax administration: this document sets out proposals for tax administration changes needed to support digital tax accounts, including enquiry powers, new penalty models for late filing and late payment, and alignment of interest across taxes. Amendments are needed to the existing legislation to allow enquiries into end-of-year declarations, with corresponding safeguards to prevent enquiries into regular updates. Prompts and nudge messages during the year will not constitute a notice of enquiry. The proposals would preserve the 12-month enquiry window from delivery or amendment of the self-assessment tax return. A new approach to late submission penalties would involve each failure attracting penalty points, resulting in a penalty charge only once the points reach a set level. Two proposals for new sanctions for late payment would involve either: (1) penalty interest levied on taxpayers who fail to pay in full within fourteen days of the due date; or (2) revised legislation to deliver an aligned penalty regime for income tax, VAT and corporation tax. The government plans to take a phased approach to aligning the interest regimes across the taxes.
· Making tax digital: transforming the tax system through the better use of information: this document focuses on how HMRC intends to make more effective use of third party information to pre-populate digital tax accounts, starting in October 2016 with bank and building society interest and moving to other sources of income after April 2018, as part of the government’s overall aim of removing the need for taxpayers to complete self-assessment returns after 2020. From October 2016, HMRC will start to use previous tax year bank and building society interest information to amend PAYE tax codes. From April 2017, it will start to use PAYE information during the tax year to calculate whether the right tax is being paid. From April 2018, it will include common income types in the in-year calculations of tax on a more frequent basis, starting with bank and building society interest. New sources of third party information will be explored, including from other government departments, to reduce the reporting burden on taxpayers.
The government’s plan is for digital tax accounts to apply to income tax, NICs and CGT from 1 April 2018, VAT from April 2019, and corporation tax from 2020.
