No let-off for PSCs from quarterly tax reporting

The vast majority of IT contractors will not qualify for an enviable waiver from the taxman’s quarterly reporting regime.

In fact, the waiver or “exemption” will only apply to unincorporated businesses (and landlords) with low annual incomes “below a threshold that will not be less than £10,000.”

Although the upper threshold is yet to be set, the exemption “will not apply where someone’s income is through their own incorporated business” -- the structure IT contractors often use.

HMRC added: “All businesses with Income Tax, National Insurance, VAT or Corporation Tax obligations will be within scope of these requirements unless they have been explicitly exempted.”

So HMRC’s new system of updating its officials ‘at least’ every three months via an online account will apply to “almost all business types including…private companies.”

But also in one of six new consultation documents on the system, Making Tax Digital, the Revenue says it will grant a one-year deferral period to businesses with sales above £10,000.

“We would welcome views on whether an annual income (turnover) threshold is the right way to identify these businesses and at what level this upper threshold should be set,” it says.

Except for these yet-to-be defined traders and the entirely exempt, businesses that “genuinely cannot use digital tools” are the only other enterprises that will not have to adopt the system from April 2018.  

From then, all other businesses will be required to provide data in-year to HMRC and its systems using digital tools, which will be provided free of charge and with guidance.

“Most businesses, self-employed people and landlords will [by 2020] need to keep records digitally and will update HMRC more frequently than is currently the case,” the consultations say.

As to the likely impact on small and micro-businesses, which would include one-person limited companies and other tiny consultancies, HMRC acknowledges that it will be disproportionate.

It wrote: “We recognise by their very make-up that these businesses are likely to be more affected by one-off transitional costs and digital capability issues, and may therefore find it more difficult to move to the new digital requirements.”

However the tax authority also says that, in the longer term, it “expects” that the quarterly reporting system will “lead to a reduction in administrative burdens for these businesses.”

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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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