By 2020, self-employed people will have to keep track of their accounts and tax affairs digitally and will be required to submit updates to HMRC quarterly. This is all part of the government’s plan to transform HMRC into one of the world’s most digitally advanced tax administrations.
As part of the transformation, annual tax returns are planned to be abolished. Instead those self-employed will be required to submit quarterly updates to HMRC via their unique digital tax account.
The announcement has evidently brought a lot of negative criticism and David Gauke, Financial Secretary to the Treasury, has made it clear that, “This transformation does not – repeat, not – mean four tax returns a year,”
“What it means is that by 2020, most businesses will be keeping track of their tax affairs digitally, updating HMRC at least quarterly via their digital tax account.
“Importantly, these quarterly updates will not involve the complexity of a full tax return, where the business, or their agent, has to gather together and manually input data onto an electronic or paper form, and then perform various calculations,” continued the financial secretary.
On one hand, through scrapping annual returns those self-employed will benefit, as they will be able to update their expenses and financial information regularly throughout the year. The new system will even allow them to do this via their smartphone, if they so wish, saving a tremendous amount of stress and hassle. No longer will they have to submit a box of receipts to their accountant or search around for missing receipts at the last minute.
Through submitting updates quarterly, people will have clarity over their finances and will be aware of their tax liabilities, allowing them to actually plan for their tax bill at the end of year.
However, the downside of such a move is that for those self-employed to achieve a more up-to-date view of their finances, more work is going to be required. It is not yet clear what information will need to be submitted every quarter, but if an accurate overview is to be achieved, time is going to have to be spent on checking and submitting accounts, or else additional accountancy fees will be faced.
Furthermore, with the self-employed having to report information digitally, those who do not use computers for their record keeping are going to be hit the hardest.
Others who are self-employed have also raised concerns regarding the reporting of WIP, debts and capital allowances and how this will actually work. Unfortunately, there are no answers as of yet and we wait for further information to be released.
To help you get to grips with the changes we have set up a timeline that highlights the key dates you need to be aware of. We are already working with some of our clients to get them onto cloud accountancy software ahead of the changes, giving them more time to adapt to the new system.
For further information or to find out more, please contact firstname.lastname@example.org.
Source: David Gauke on Making Tax Digital (https://www.gov.uk/government/speeches/david-gauke-on-making-tax-digital)