From 2018 the way in which you interact with HMRC and the tax system will start to change.
The government are undertaking one of the largest and most significant projects in a generation, the Making Tax Digital programme.
The objective of this project is to engage with individuals and businesses more frequently on a digital platform. This will impact the self-employed, landlords, individuals and incorporated entities, all of which will be required to keep adequate records, and to update and potentially pay taxes to HMRC quarterly! Failure to do so will result in financial penalties and interest.
Providing HMRC with updates
Businesses will need to record and categorise receipts and expenses in software eligible to report into the MTD platform.
A summary update must be sent to HMRC at each due date. HMRC state that by updating them regularly, it will provide you with more certainty over your likely tax bill, allowing you to manage your cash flow more effectively throughout the year.
Updates to HMRC will contain summary data only, however this will be a struggle for most who reconcile books and records annually.
End of Year activity
HMRC are currently running consultations to explore how the figure of taxable profit for unincorporated entities should be finalised.
For businesses using the cash basis method of calculating their profit, this could be as simple as ensuring their updates are complete and then making a final declaration, however more complex businesses will need to review the information they have previously provided, make any necessary accounting or tax adjustments and make any changes required to figures entered previously, claiming any reliefs and allowances that they didn’t include in their regular updates.
This may lead to cash flow disadvantages as tax may have been computed and paid to HMRC in a quarter, when if prepared for the tax year, should actually not have been paid.
HMRC’s preferred approach is that all businesses should have nine months from the end of their period of account to complete this End of Year activity and make a final declaration.
Voluntary Pay As You Go
Once businesses are keeping digital records and updating HMRC regularly with summary data, this provides an opportunity, for those who wish, to make voluntary payments throughout the year towards their tax liabilities.
It is stated at this point that payments will be voluntary, however it was also stated back in 1842 that Income Tax would be a temporary measure!
HMRC comments ..we will not be altering the current payment dates, but some businesses may prefer to pay a more regular amount towards their tax liabilities.
The consultation considers how you might make or manage those voluntary payments. It considers how voluntary payments will be allocated across different taxes and explores the best way of dealing with repayments of them.
Late submission penalties:
The consultation proposes a graduated model with each non-deliberate failure to submit information on time attracting penalty points.
Once the points reach a set level a penalty would be charged. A stronger sanction is outlined for those who are deliberately non-compliant. To give customers time to get used to the new Making Tax Digital obligations, the consultation also proposes a period of time before sanctions are introduced.
Late payment penalties:
The consultation proposes new sanctions that provide a fair and proportionate response to late payment of tax and give adequate opportunity for those who have accidentally underpaid or overlooked a liability to correct this before sanctions apply.
This new digital era for taxation aims to add transparency and collection efficiency to HMRC’s arsenal, however it will all come at an expense to you and your business.
We are implementing solutions now that will ensure your ability to comply with these changes without a detrimental impact to capacity and cash flow.
F9 ensure you stay ahead of the game!