Our research has revealed that around 2.6 million small businesses are likely to face costs of more £1,250 a year as part of the government’s Making Tax Digital plans.
Under the digital tax proposals, all businesses with a turnover of more than £10,000 will be required to update their tax information on a quarterly basis.
We have looked into the figures behind this new requirement and believe it will require businesses to spend on average an additional £1,250 per year on software fees and accountancy costs – meaning the UK SME sector is likely to face a bill of £3.2 billion a year.
This is despite HM Revenue & Customs (HMRC) claiming earlier this year that the system would reduce the net business costs of administering the tax system by £400 million a year.
Businesses are already effectively collecting VAT, PAYE, National Insurance and Corporation Tax on behalf of the Revenue free of charge and we – as an SME with 55 staff members – handed over £1.3 million last year alone through the tax we collected, with no financial contribution from the government to cover the cost of administration which exceeded £7,000.
HMRC are trying to sell these proposals as a helping hand to business, but in reality for the 2.6 million businesses affected it is going to mean additional spending on software, and in most cases, accountancy fees.
This is without even mentioning the additional administrative burden of uploading the information, which will either fall on the individual business owner or their accountant.
We have estimated, based upon the current costs of our own clients, that those affected by these changes will face an additional bill of around £1,250 a year in related business costs, which is a significant amount for any small business, especially when it is of no immediate benefit to the company.
HMRC are effectively making businesses do its work and charging them for it – a position which many businesses will find a bitter pill to swallow.
According to HMRC’s consultation papers, businesses will be able to update their businesses tax information through a series of apps and software, which will create a record of their business activity which will be sent to HMRC.
At the end of each quarter HMRC will send through a statement outlining their activities, which they will be asked to confirm it is correct when sending it back. Taxpayers will still have a statutory obligation to ensure the information is correct and report any income that has not been included in the calculation on an annual basis.
Consultation on the government’s Making Tax Digital Proposals will run until 7 November 2016 and some unincorporated businesses will be expected to start using the system to report tax by 2018, bar a few exceptions that may be able to defer for a year.
By 2020 all businesses in the UK will be expected to start reporting on a quarterly basis and some may be required to bring the payment of tax forward.
If you are concerned about the potential costs or administrative burden that Making Tax Digital may impose on your business, please contact us.