Government defends digital tax account plans

Divisive plans to force all small business and self-employed people to update their tax records “at least quarterly” have been defended by the government.

In a reply to the more than 100,000 people who signed a petition against the plans, officials said that taxpayers would not have to submit the equivalent of four tax returns a year.

In fact, the quarterly updates proposed from 2018 will be “fundamentally different” from the “complexity” of filling out an annual self-assessment form in three ways, HMRC said.

Firstly, it will be “much quicker” as the updates will be generated from “existing digital business records and “in most cases, little or no further entry” of data will be needed.

Secondly, adds the HMRC reply to the petition, sanctions for lateness or inaccuracies will not be the same as they are under the current tax return system.

And thirdly, digital tax account holders will receive a “developing in-year picture of their tax position,” allowing them to have “greater certainty about what they owe” and how to plan.

This differs from the current system where “many taxpayers are caught out by their tax bill when it finally arrives,” admits the Revenue in its response, available online.

Sounding less positive, and potentially aware of security issues, the response says the onus will be on taxpayers to use software or apps that can "connect securely" to their digital tax account.

But HMRC reassured: “The government will ensure that free products are available [and] the Gov.UK service will signpost taxpayers to the right product, with clear HMRC guidance about how to choose software.

"HMRC will ensure support is available for people to get online if they need it. We will also provide alternatives for those who genuinely cannot use digital tools, like telephone filing."

Speaking before the response, a support group for one-man bands said any requirement for taxpayers to use software would be unwelcome - because of time, money and fears of exclusion.

“Companies which do not already use record-keeping software, or are using software that will be incompatible with HMRC’s digital accounts, will have to spend a great deal of time transposing their business records onto new systems to satisfy HMRC – time spent in an activity of little or no value to them or their customers,” said the Low Incomes Tax Reform Group.

The group’s Anthony Thomas added: “It is very harsh that the smallest businesses with the lowest profit margins may be required to undertake significant investment and training in computer technology simply in order to comply with HMRC’s reporting requirements, and for no other purpose.

“Instead of mandation, HMRC should develop software that is so much more convenient and easier to operate than any alternative that people will naturally choose to use it, as is already the case with online self-assessment filing. That approach we would fully support.”

HMRC says it will introduce the plans “gradually” and will use volunteers to test the new software so it can gather feedback. It also says a consultation will run this year so that affected parties can have a say, including on the sanctions for late or false reporting.

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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