ACCOUNTING body UK200Group has moved to quash fears that HMRC plans to force SMEs and the self-employed into submitting quarterly tax returns.
The move comes in response to a petition against the taxman’s proposals. On 16 December, a small business owner named Paul Johnson created an online petition slamming the possibility of HMRC enforcing quarterly tax returns.
Johnson claimed that small businesses across the country would suffer from additional red tape, accountancy fees and potential hefty fines if the rule came into force.
“As a small business owner myself I already spend quite some time to get things in order once a year,” explained Johnson.”At the moment we pay £1,200 a year in accountancy fees this figure will greatly increase. The Conservatives are not working for small businesses in brining such legislation but adding burden.”
The petition currently has over 104,000 signatures, so will eventually be debated in parliament.
During last year’s Autumn Statement, George Osborne indicated that quarterly returns for SMEs and self-employed taxpayers could be a possibility, coinciding with the government’s £1.3bn digital overhaul of HMRC, which has already caused the closure of 137 tax offices.
Some advisers have already outlined their fears towards HMRC’s digital tax accounts, with Elaine Clark, founder of CheapAccounting.co.uk, admitting that it will initially be a ‘nightmare’ for clients.
No return is required
Andrew Jackson, senior partner at UK200Group member firm Fiander Tovell, has quashed fears that quarterly tax returns may be required, highlighting “that the new rules that are being protested about have not yet been written.”
“There has been a lot of speculation in the press that the new regime would require all businesses to essentially have to file a tax return every three months, which would lead to all sorts of problems – from the sheer admin burden of doing four times the work, to the logical problems of reporting an annual profit quarterly,” said Watkins.
“However, this all assumes that the position sketched out by HMRC is going to be an absolute requirement.
“Given that the details are yet to be discussed, I have so far assumed that HMRC’s sketch is of the ideal position, which might be achievable, rather than the initial one which would be mandated. This seems to be borne out by HMRC’s initial response to the petition.
“Looking at the proposals in more depth, all we really have is the suggestion that taxpayers should have an online account, which can be used to keep HMRC up to date with their tax affairs, and that this might mean that no return is required in many cases. I can see that working well.”
Jonathan Russell, partner at UK200Group member firm ReesRussell has hit out at HMRC, claiming that this petition highlights government’s “lack of understanding of accounting and small businesses”.
“Government seem to think that preparation of accounts is a five minute job which it might be if done on a cash basis, but that is not what they have asked for, except in micro accounts, and then accounts preparation is much more complex and time consuming.
“While we await details, it seems the current suggestion is that businesses will prepare and file quarterly accounts to the same level of detail most small businesses only do at their annual accounts.
“Many small businesses are not capable of preparing financial accounts to this detail and have to engage professional help and unfortunately the work involved to produce a quarters accounts is almost as much as to do it for a year,” continued Russell.
Potential cost to SMEs?
The Forum of Private Business predicts that the quarterly filing regime would cost some small businesses an extra £600 in accounting fees, with experts warning that the cost could eventually rise to as much as 150%.
Despite officially having 18 days to respond to the petition, a HMRC spokesperson has already released a statement which says that there will be no need for people to submit four returns a year, with tax updates being generated throughout the year based on ‘existing digital business records’.
“Making Tax Digital will not mean ‘four tax returns a year’. Quarterly updates will largely be a matter of checking data generated from record keeping software or apps and clicking ‘send’,” said the response.
“These reforms will not mean that businesses have to provide the equivalent of four tax returns every year. Updating HMRC through software or apps will deliver a light-touch process, much less burdensome and time-consuming than it is today,” continued the tax authority.
The spokesperson explained that quarterly updates will eventually be introduced for some UK taxpayers by 2018, and the rule will be fully phased in by 2020.
HMRC hopes that the rule will clamp down on unpaid tax, with the government department claiming that “£6.5bn in tax goes unpaid every year because of mistakes made when filling in tax returns”.
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