The new HMRC online tax return system will this really simplify things for small business owners?
January a month that may fill many of you with a sense of dread. Not only is the fun of the festive season now finished, the deadline for submission of your tax return and the payment of your tax bill has come around again. Even quicker, it seems, than the year before.
However, it has been announced that from 2016, tax returns, as we know them, will be scrapped in favour of real time individual digital tax accounts. The chancellor George Osborne has called it “a revolutionary simplification of tax collection” but will this really be the case? Here we take a look at some of the key issues arising.
How will it work?
The idea is that you will be able to submit accounts throughout the year via a computer, tablet or smartphone. You will be able to pay your tax at any point throughout the year rather than submitting an end-of-year return and paying an annual tax bill in one go.
The account can be updated in real time and will calculate how much tax you owe without the hassle of completing a tax return. Information from employment, pensions and savings will already be there and you will be able to enter details of self-employment and other income.
The switch is expected to start with five million small businesses and the first ten million individuals in early 2016. By 2020, your business should be able to link in its accounting software and bank accounts directly to your digital tax account.
Is this really going to benefit me?
The option to “pay as you go” will provide more certainty about what you need to pay and when, so you can manage your cash flow. If tax information is submitted regularly, your tax bills are going to be more closely related to your current performance. If things are going well, your tax account will reflect this and you can make payments whilst you can easily manage these.
Higher-income families will, in particular, be among those to benefit. Since last year, families where one parent earns more than 50, 000 have had to fill in a tax return, since child benefit payments are reduced above this threshold. Under the new system, these payments should be calculated automatically.
What should I be concerned about?
Whilst a direct link from your business? software to your HMRC record without the need to complete a tax return sounds great in theory, it is likely that there will be many practical issues which affect the accuracy of the data. If you are currently used to only an annual check by your accountant to ensure that your books are reconciled and your accounts are correct, then you may need more regular assistance throughout the year to ensure the accounting information being fed into HMRC is correct.
Given’s HMRC’s often poor reputation for accurateness, there will still need to be proper reviews of the information being compiled in the central record to ensure that the ongoing tax calculations are correct.
There is a risk that the new system could actually leave tax payers worse off. At present, it has been reported that over 25 per cent of tax codes are incorrect. Without a mechanism for taxpayers to report their actual income and gains and to claim reliefs due, many taxpayers could end up paying more in tax than is due if only the digital accounts are relied upon without additional information.
It is also yet to be confirmed what happens if a tax payer approves their tax account and HMRC have got it wrong. Will the taxpayer still be penalised Under the new regime, it is rumoured that tax payers may receive fines of up to 2, 000 for failing to keep on top of their tax, a big difference to the current 100 fine.
Stephanie Levin is a partner at audit, accountancy, outsourcing and business advisory practice Shelley Stock Hutter, having first joined the firm as a manager in 2010. She has developed experience of working with both startup and SME-stage businesses, helping with factors such as establishing the right corporate structure, VAT registration, payroll and remuneration packages. She has also worked in a senior finance position for the medical insurance company Bupa.
If you are running your own business, chances are you are doing just that. Running. Running from one meeting to the next, running between suppliers and customers and dealing with your staff. Before you know it you are hurtling at full pace towards another financial year-end. more»