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Tax & admin Fred Heritage · 15 August 2016
HMRC exempts 1.3m small firms from quarterly reporting under new tax system
The government has eased the transition to a new tax system for the country?s smallest businesses, announcing that 1.3m firms will be exempt from digital record-keeping and quarterly tax updates. Following months of consultation with business groups and representative bodies, HMRC confirmed that small and micro firms, which don?t yet have the means to ?go digital? as part of the government?s new Making Tax Digital system, will not have to. Hailed as an ?incredibly important? move, it is hoped the exemption will enable the smallest firms to continue trading as normal without the burden of having to update HMRC more regularly than once a year. Following the announcement, national chairman at the Federation of Small Businesses (FSB) Mike Cherry said that progress had been made in the interests of smaller firms, while ?real dialogue? had taken place between the new government and the small business community. ?Half of the UK?s 5.4m small businesses will [now] not be affected by quarterly tax reporting,? added Cherry. ?The expansion of cash accounting, a longer lead-in time for implementation and the offer of direct financial assistance will also help.? Some 1.6m smaller firms and landlords have already been granted exemption from quarterly tax reporting duties, and it is expected the government will consider deferring digital record-keeping and quarterly reporting to a further group of small business owners, while exploring options to assist firms with the transition to the new system. The announcement follows the publication of six consultation documents which sought views on HMRC?s new Making Tax Digital programme, the benefits of which are said to include a new cash-basis accounting system, regular prompts and alerts giving business owners tax advice, and greater clarity over tax bills. Commenting on the consultations and the new system, executive chair at HMRC Edward Troup said: ?There is still a lot to design and develop, and it?s important we do this hand-in-hand with customers and their representatives ??these consultations are the next step in the process.? The new digital tax system will, in theory, simplify the process and take away much of the administrative burden of filing tax returns for businesses, yet past digital developments have proved disruptive, particularly for small and micro firms. To help, our expert has provided advice on how small business owners can get up to speed with their duties under the new system. Financial secretary to the Treasury, Jane Ellison, added that the latest consultation round reflected the government?s commitment to a ?transparent and accessible? tax system that would be fit for purpose. Ellison said: ?Making Tax Digital will make the UK?s tax administration more efficient and straightforward, and will offer businesses greater clarity when it comes to paying 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.? Ahead of significant changes to taxes on dividends, more and more business owners are choosing to extract profits rather than reinvest in companies. Read more here.?
ABOUT THE EXPERTFred Heritage
Fred Heritage was previously deputy editor at Business Advice. He has a BA in politics and international relations from the University of Kent and an MA in international conflict from Kings College London.