HMRC digital accounts and quarterly reporting – Feb 2016
In the March 2015 budget (further announced in the Autumn Statement) the government declared its intention to transform the UK tax system by the introduction of personalised digital tax accounts, and removal of the need for annual tax returns. By 2020 most businesses, self-employed people and landlords will be required to advise HMRC of their taxable income on a quarterly basis, within 30 days of the quarter end, via their digital tax account. It is intended that this will not apply to individuals in employment or pensioners, unless they have secondary incomes of more than £10,000 for the year from self-employment or property.
It is unclear at this stage what changes there will be to the current payment structure. But as assessments will be raised quarterly then tax payments will, no doubt, be made more frequently!
HMRC will share information that it already knows – eg income and benefits from employment reported under RTI, Bank and Building Society interest received, and state pensions. This information will be shown in the digital tax account.
Quarterly reporting for the self-employed and landlords, to which this is applicable, will be phased in from April 2018.
Greater use will be made of adjustments to tax codes, for those employed, to collect tax from other sources, not covered by the quarterly reporting.
In addition, capital gains on property disposals will need to be paid within 30 days of disposal from April 2019.
Quarterly reporting for limited companies will come in effect from 2020.
Although there will be further discussion before implementation, the main concerns as I see it are as follows:
- Potential increase in tax and accountancy fees. Especially with sole traders, who are possibly only use to preparing accounts on an annual basis, with the assistance of their Accountant. They will have a requirement to present quarterly figures;
- Taxable profits/losses for the year may be erratic – profit one quarter and loss the next;
- Quarterly account figures would need to be adjusted for tax adjustments – eg depreciation, disallowed expenses, private proportions and capital allowances;
- For limited companies what will be the interaction between Companies House and HMRC? Will annual accounts be required by either?
- Presumably there will be some kind of annual reconciliation – will adjustments found for earlier quarters be put through in the last quarter and will there be any penalty implications?
- What will penalties be?
This has prompted a lot of discussion and debate, although HMRC ‘s argument is that the new system will provide individuals and businesses with a more real time view of their affairs and certainty of the tax they owe, it is likely to be at a greater tax and accountancy cost and more frequent tax payments. So it is a question of “watch this space”!
Friston Wicks; Chartered Accountant and Chartered Tax Adviser