Hailed as a ‘digital revolution’ by George Osborne, the government’s plans to overhaul the way small businesses pay their taxes will actually add to SMEs’ administrative burdens, according to a new report.
The report, published by the Administrative Burdens Advisory Board (ABAB), an independent body overseeing HMRC, predicts that the new digital tax system for the self employed – which will include obligatory quarterly financial ‘updates’ – will mean increased pressure in terms of record keeping and costs for many small businesses.
In its annual report, the ABAB stated:
‘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.’
Independent small businesses and self-employed workers will have the choice to use the scheme from 2018 and by 2020 online record keeping will be mandatory.
The ABAB report expressed concerns about the feasibility of going completely digital when a large proportion of the small business community simply don’t have the technology:
‘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.’
Mike Cherry, Chairman of The Federation of Small Businesses has backed up the report’s claims, drawing attention to the financial impact of the new system and urging the government to reconsider:
‘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. 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.’
Recent months have seen the business community in uproar as Osborne’s initial pronouncements suggested that businesses would have to complete four separate tax returns a year. A petition to stop the plans started by small business owner Paul Johnson gained over 110,000 signatures.
The treasury and HMRC denied that four actual returns would be required in a parliamentary debate in January, but Labour MP Chris Leslie voiced the remaining concerns of business people in his statement:
‘I’m less concerned about the shift from paper to online than I am the seismic shift from annual to quarterly reporting, updates, summaries, returns – call them what you will – they are something that small businesses are going to have to produce. What’s the difference between a return, a summary or an update?'
Indeed, most MPs and many in the business world feel that a move towards more online tax activity will be ultimately beneficial, but the quarterly reporting issue is still a burning one.
‘Making Tax Digital’ has been advocated by the government as a means to recoup the estimated £6.5bn that is unpaid each year due to mistakes on tax returns and predicts that the scheme will raise an additional £600 million a year by the end of this Parliament. In his 2015 Autumn Statement the Chancellor claimed:
‘We’re going to build one of the most digitally advanced tax administrations in the world. So that every individual and every small business will have their own digital tax account by the end of the decade, in order to manage their tax online.’
Many, however, are concerned that the proposed changes are less about making life better for small businesses and more about cost savings at HMRC.
Yet to be decided is when payments will be due under the four quarterly system and if sanctions will be applied to those who don’t file their ‘updates’ on time.
The ABAB body has been garnering opinion from the small business and the self-employed community through an online form. In February it published the Tell ABAB report – 2015/2016, revealing the feedback and suggestions from over 2,000 individuals.
The independent body concludes in last week’s report:
‘Whilst we recognise and are supportive of the need to move to digital and the potential this brings, we are disappointed with the announcement to mandate digital record-keeping and quarterly online reporting for even the smallest businesses as part of Making Tax Digital for Business.’