HMRC needs to put the brakes on rushing through plans to make companies and individuals manage their tax affairs through a digital, online account, says Simon Littlejohns, Head of the Tax Team at Friend Partnership Limited.
The changes, set to come into force in 2020, are a key part of HMRC’s preparation for its ‘Making Tax Digital’ project, and will affect all UK taxpayers from large corporates to OMBs, SMEs, the self-employed and individuals.
Simon Littlejohns, a partner at Friend, believes HMRC is rushing through the changes.
“HMRC is simply not taking the time to review the findings of the consultation that has only just closed, or consider the widespread impact of the enforced changes,” he says. “Timing really could have been better, with everyone still coming to terms with the impact and challenges of Brexit, and the Autumn Statement just around the corner too.”
Simon, who works predominantly with business owners, owner managed businesses, entrepreneurs and High Net Worth individuals, says that the switch to digital tax accounts is set to affect all businesses, organisations and individual tax taxpayers:
“It will be a more sophisticated version of the personal tax accounts which are already in use for individuals who currently file their tax affairs via the self-assessment regime – whether online or on paper. The move to quarterly tax returns and a fully digital system will carry practical implications for a huge number of businesses and individuals, as well as their advisors.”
The planned digitisation of tax will allow taxpayers to see all of their tax details online. By 2018, banks and building societies will be required to report interest payments to HMRC to be included in digital tax accounts, and individuals will be able to report additional sources of income digitally.
“FDs of corporates will have to increase the frequency with which they review their company’s tax affairs. Individuals used to filing their tax forms on an annual cycle will need to increase this to four times each year too. For High Net Worth individuals in particular, this presents a potential headache, with the nature and location of their assets and investments often being complex.”
For businesses, the planned digital tax accounts will show an overview of income tax or corporation tax, VAT and National Insurance Contributions, plus income and expenses on a quarterly basis.
“Quarterly returns will force businesses to divert existing staff resources and expenditures to deal with the tax accounting. If they don’t have capacity to input the data and keep the system up-to-date, they will need to spend money and recruit,” says Simon.
“For larger companies with financial controllers, accounts teams and reasonably sophisticated software accounting systems in place, the switch has the potential to be quite arduous and will bring implications in terms of business and expenditure planning.”
There are also technical issues that Simon sees as potential problems for his clients, such as whether tax advisors are going to be able to access their clients’ digital tax accounts easily and effectively:
“HMRC officials are happy to make the information in the digital tax account available to agents, who will be able to dial into HMRC’s systems, download the information they need, pull it into the tax return or the accounts that they’re preparing, or use various interfaces to see the information in the way that they want to. They’ll not be restricted to seeing the information in the way that the client does, and the format will be more flexible and more useable.
“However, HMRC officials have said that the agent will not be able to see the digital tax account itself. What they will have to do is to reconstruct the tax account from the data they have available. This has the potential to be very dangerous, as the taxpayer and the agent will potentially see different things. If we cannot see a client’s tax details, how are we supposed to help them to handle their tax affairs?”
For more information about HMRC’s ‘Making Tax Digital’ project: https://www.gov.uk/government/organisations/hm-revenue-customs.
Contact Simon Littlejohns on 0121 633 2000 or click here to email.
Since Friend Partnership Limited was established as a corporate finance boutique in 1983, it has grown into a well-respected Chartered Accountancy practice offering a full range of business advisory, accountancy and taxation advice and support services. It works principally with privately owned businesses operating nationally and internationally in a variety of sectors including manufacturing, technology, renewable energy, distribution, retail and construction, and range from entrepreneurial start-ups to well-established businesses.