Quarterly tax reporting plans slammed by business leaders

18/04/2016

Business leaders have slammed government plans to force small businesses to submit quarterly digital tax returns.

During last year’s Autumn Statement, George Osborne indicated that quarterly reporting for SMEs and self-employed taxpayers could be a possibility, coinciding with the government’s £1.3bn digital overhaul of HM Revenue & Customs (HMRC).

But the controversial plans have been met with strong criticism across the business community.

Most recently, the Administrative Burdens Advisory Board (ABAB), HMRC’s independent oversight body, used its annual report to highlight “significant concerns” about the proposals.

The report, published on Tuesday 5 April, said: “Compulsory digital record-keeping and quarterly online updates is not an approach we can endorse.

“We are concerned that the proposals for quarterly updates will be more burdensome than they currently are with increased record-keeping and compliance costs. This will have a big impact on the smallest of businesses.”

More concerns

The Federation of Small Businesses (FSB) echoed the ABAB’s criticisms, saying that the plans are “poorly thought out”.

Mike Cherry, national chair of the FSB, said: “Forcing small firms to pay for expensive digital accounting software so they must submit extra tax returns is not going to help anyone.

“It will simply add to the cost of doing business in the UK. These proposals will also substantially increase administrative burdens – particularly for the smallest businesses.

“When every independent body and expert is lining up to tell you to stop, slow down and think again, it might be time to take a breather and listen to their concerns.”

Reporting requirements unclear

In the Making Tax Digital report, which outlines how HMRC will transform the tax system so that it is more effective, more efficient and easier for taxpayers, HMRC said: “From April 2018, businesses, including everyone who is self-employed and those letting out property, will update HMRC at least quarterly where it is their main source of income.”

But exactly what this quarterly reporting will involve has yet to be decided.

In January, the financial secretary to the Treasury, David Gauke, assured business owners that they would only need to update HMRC quarterly and the information required would not be complex.

He said the move would end the “agony” of the annual tax return. Gauke added: “By keeping records in real time, businesses are less likely to lose receipts or make accounting errors.”

Educational challenges

Another key concern raised by critics is the educational and logistical challenges of transferring the system online.

The ABAB report said: “We would also encourage HMRC to urgently obtain a greater understanding with regard to the population of small businesses that do not have the required digital capability to engage and/or currently operate their business utilising manual (or partly manual) procedures; and develop the associated support required to enable them to engage digitally.”

In contrast, some feel that the digitalisation process could lead to a more efficient system.

Jason Kitcat, microbusiness ambassador at Crunch, an online accountancy firm for the self-employed, says: “Changes to the tax system always risk confusing small-business owners at first, but we believe the government’s Making Tax Digital programme will be incredibly beneficial in the long-run.

“The current system is built on an outdated timetable which assumes paper-based returns. Most filing and payments happen electronically and there’s no reason the rest of the system shouldn’t follow.”

Whilst the proposals are yet to be fully outlined, it’s clear that opinion is split on how effective or detrimental the plans will be.

So, what do you think? Will quarterly reporting increase the burden on small businesses? Or, will it make the process more efficient? Please share your views in the comments below.