A petition went around last year calling for HMRC to rethink their plans to compel the self-employed and microbusinesses to file four quarterly tax returns a year, as was announced in the Autumn budget statement.
HMRC’s response to the petition is breathtaking, in the sense that you will want to take a deep breath so that you don’t punch something. Consider yourself warned.
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’.
“No it isn’t, it’s just a flesh wound.”
Any process which requires a self-employed individual to set aside time and resources to update their books, log into a system, validate their business finances, and transmit that information to HMRC is a tax return, regardless of what it’s called.
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.
Why does HMRC live in the blissful delusion that software and app developers can simply tweak their systems just like that to accommodate their whims, in this case, four non-tax return tax returns a year? It worked so splendidly for VATMOSS.
At the March 2015 Budget the government committed to transform the tax system by introducing simple, secure and personalised digital tax accounts, removing the need for annual tax returns. At the 2015 Spending Review the government announced it would invest £1.3bn in HMRC to make this vision a reality, transforming HMRC into one of the most digitally advanced tax administrations in the world. One element of this vision will be asking most businesses, self-employed people and landlords to keep track of their tax affairs digitally and update HMRC at least quarterly via their digital tax account. Many taxpayers have told HMRC that they want more certainty over their tax bill, and don’t want to wait until the end of the year, or even longer, before knowing where they stand with their taxes.
More of that tiresome spin of painting ill-thought-out and unpopular reforms as meeting public needs. Also: “elements of visions” are not recognised policy tools. They are the early phases of a migraine.
We also estimate that £6.5bn in tax goes unpaid every year because of mistakes made when filling in tax returns. These reforms will make it easier for taxpayers to maintain accurate and up-to-date tax affairs, reducing the scope for error.
You guess that £6.5 billion goes unpaid. You also guessed that VATMOSS would impact only 34,000 businesses. When it comes to the self-employed, HMRC consistently gets its figures dead wrong. Here are some non-guessy facts: Amazon alone avoided £5.9 billion in tax last year through calculated strategies, not mistakes. Why is the tax revenue I’m going to inform you about through my four quarterly returns being used to subsidise them?
With businesses keeping track of their tax affairs digitally, quarterly updates will be fundamentally different from filling out an annual tax return in a number of crucial respects:
• Quarterly updates will not involve all the complexity of a full tax return. The updates will be generated from existing digital business records. In most cases, little or no further entry of information will be needed. It will be much quicker to complete than the current tax return.
• As part of the process the business owner or individual will receive a developing in-year picture of their tax position, helping people have greater certainty about what they owe, allowing them to plan their finances more effectively. This differs from the current system where many taxpayers are caught out by their tax bill when it finally arrives.
• In-year updates will not be subject to the same sanctions for lateness or inaccuracies as apply now to the year-end position. HMRC will consult during 2016 on what sanctions might be appropriate for a more digital tax administration.
Here’s why the self-employed are going to be painfully aware of their tax positions: has it occurred to HMRC that
4 quarterly non-tax return tax returns
+ 4 VATMOSS returns
+ 1 annual full tax return
9 tax submissions
that the self-employed must make every year, despite the average annual self-employment income being just £10,764? It works out to a tax submission for every £1200 in income. (Come to think of it: the personal allowance is £10,600, or £164 under the average self-employment income. There are 4.6 million self-employed in the UK. How do they figure £6.5 billion in unpaid tax revenues from that?)
— Rebecca Cave (@TaxwriterLtd) January 7, 2016
The government has already announced that these measures will not apply to individuals in employment or pensioners, unless they have secondary incomes of more than £10,000 per year from self-employment or property.
Because, dear taxpayer, once people reach a magical age in this country they are transformed into sacred cows, which means we can’t possibly ask people over that age (who by and large have more income and more sources of income than the working young) to be accountable for anything. This is called “a fair society”.
The reforms will rely on businesses, self-employed people and landlords using software or apps that can connect securely to their digital tax account. The government will ensure that free products are available. The Gov.UK service will signpost taxpayers to the right product, with clear HMRC guidance about how to choose software.
The government will ensure those free products are available from…where exactly? Down the back of the sofa? Do accounting SAAS providers realise they are about to be hit up to create free/lite versions at a net loss to themselves?
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. This will build on our Needs Extra Support service, which has gone from strength to strength in helping more vulnerable customers.
Oh dear. They think digital refuseniks will go from “this is a mouse” to filing quarterly tax submissions with the help of a patient librarian.
We’re introducing these reforms gradually. We’ve been in discussion with stakeholders since March 2015 and will be consulting on the details of the proposals throughout 2016. We will use volunteers to test the new tools and processes and give us feedback. Quarterly updates will be introduced for some from 2018, and will be phased in fully by 2020, giving taxpayers time to adapt.
Here we go again. What stakeholders? Who are they? How were they selected? How have then met? What questions were asked? Where are the meeting minutes? You will be consulting with whom, in what way, throughout 2016? Tax reforms need transparency and answers, not spin.
We will use volunteers to test the new tools and processes and give us feedback. Quarterly updates will be introduced for some from 2018, and will be phased in fully by 2020, giving taxpayers time to adapt. We want to work with all stakeholders to ensure these changes work for them. For more information about the proposed reforms please search for ‘Making Tax Digital’ on Gov.UK or use the following link:
We’re still trying to repair the damage caused by the last time HMRC worked with stakeholders. The people who created that mess got gongs and MBEs. You and I are going to get nine tax submissions a year.
Defenders of increased tax burdens on microenterprises – and there are some – view them as a sort of tough love that forces small businesses to work harder to grow out of their “infantile” stage. It’s easy to say that from an ivory tower. From my freezing winter trench of self-employment, I can tell you without a doubt that mandating nine annual tax submissions for a four-figure income is not a growth strategy.
I think James (as they often do) put it best: “You tell me it’s the making of me/that’s a fucking lie.”
About the author
Heather Burns is a digital law specialist in Glasgow, Scotland. She researches, writes, publishes, consults, and speaks extensively on internet laws and policies which affect the crafts of web design and development. She has been designing and developing web sites since 1997 and was a professional web site designer from 2007-2015. She holds a postgraduate certification in internet law and policy from the University of Strathclyde. Learn about hiring Heather to write, speak, or consult.