As we said last week, HMRC’s vision of the future is that all dealings with tax payers and agents will be digital. The process is already underway and HMRC are currently running consultation events to gather the responses of agents and advisors. Tait Walker was invited to take part in a consultation earlier this year where the topics for discussion were quarterly reporting and simpler payments.
All businesses will be required to take part in quarterly reporting which is due to begin in April 2018. In addition, it is anticipated that individuals with non-PAYE taxable income over £10,000 (e.g. Rental income) will also need to report quarterly. It is worth noting that the Association of Tax Technicians (ATT) has recently called on HMRC to postpone the introduction of quarterly reporting by at least a year, due to delays in the consultation process caused by the EU referendum.
The mechanics of the system are not yet known so we don’t know whether every single business transaction will be reported or whether it will be a quarterly summary of receipts and payments. There was a lot of concern from the agents in the room about how it would be possible to identify items which were and were not tax deductible.
Tax payers will clearly still need help from their accountant to check that information that has been reported quarterly is treated correctly. HMRC admitted that they do not see quarterly reporting as an end to agent involvement.
Every business is to have its own HMRC digital tax account and agents will have access to these accounts through the Agent Services process (formerly Agent Online Self-Serve), which is currently being tested by agents with fewer than 200 clients. The testing process is due to open up to larger agents later on this year. Tait Walker has registered to take part in the testing so that we can give feedback and keep our clients right up to date with what is happening.
HMRC said that Simpler Payment is an opportunity for them to consider how to simplify payment arrangements for tax payers. It is likely to follow on from quarterly reporting but discussions are still in the early stages and we were advised that nothing has been finalised. A number of agents in the room expressed concern that this was just a way for HMRC to try to accelerate tax payments dates –hotly denied by HMRC!
HMRC were interested in our opinions on what they see as 3 key issues to be addressed in the process.
- Pay as you goMany people pay for their gas and electricity monthly and HMRC are considering this as a way for people to pay their tax bills. Did we think this would be an attractive option and if so, what could HMRC do to encourage people to sign up for Pay as you go? For example, make it a flexible system and allow voluntary holidays for cash flow issues or perhaps pay credit interest on amounts paid before the official due date?
- Changes to payments datesAt the moment, individuals and unincorporated businesses pay their tax in January and July each year and there can be a long delay between profits being earned and the date of payment for the tax.HMRC would like tax to be paid much closer to when the profits are earned and there was a lot of discussion about how this could be done. They wanted to know what issues or problems we thought there might be and, needless to say, there were plenty. The main one was the cash flow issue of moving from 6 monthly payments (mainly in arrears) to quarterly payments on an actual basis.
- The alignment of payment dates for Income Tax, Corporation Tax and VATAt the moment the payment dates for income tax, corporation tax and VAT are all different and HMRC would like to find a way of aligning these.It was mentioned that VAT is already paid quarterly, so why not income tax and corporation tax? Larger companies are already using a quarterly payment regime and all corporation tax payments must be made electronically.There was much discussion about how the system could be adapted to cope with unincorporated businesses all having different year ends and it was suggested that their tax payment should move to being based on the accounting year end rather than on the tax year, in the same way as for companies.
As mentioned above, HMRC’s vision of the future is that all dealings with tax payers and agents will be digital. To paraphrase a well known advert, their vision is that ‘the future’s bright, the future’s digital’.
How we get from the present to the digital future has not yet been finalised. It is clear that the tax return process will look very different, but it was emphasised that HMRC do not see “the end of the tax return” as being the end of agent involvement. They understand that people either don’t want to, or don’t have the time to deal with HMRC and so they expect agent involvement to continue.
This is one of the reasons why they want agents to be involved in these early stages so that we can help to design a system which will not only work, but be easy for everyone to use. It was clear from the consultation session that they are happy to listen to any and all concerns.
The move to a digital tax age will see major changes in the way tax payers and agents interact with HMRC. Rest assured that we are involved in the consultation process, which means that we will be able to keep you up to date with the changes.
If you would like any further advice, please contact Dorothy Johnston.