Moving closer to online Tax

Written by Paul Windsor on 3 February 2017

HMRC announced in 2016 that they wanted to go online and proposed that all accounts to go digital in the next four years. An article outlining this proposal was written by Annie Lee in September 2016. Tax Goes Online.

Following extensive consultation, with more than 3,000 responses over the last eight months, HMRC has recently issued in-depth details on how digitising the tax system will enable millions of businesses to get their tax bills right first time, without the need for an annual tax return.

Alongside draft legislation, HMRC has also published its responses to the six consultation documents issued in August 2016. After listening to the concerns of businesses and agents, HMRC can now confirm that under Making Tax Digital:

  • businesses will now be able to continue to use spreadsheets to record receipts and expenditure, which they can then link to software to automatically generate and send their updates to HMRC – this was requested by a wide range of stakeholders, particularly small businesses and the Treasury Select Committee
  • free software will be available to the majority of the smallest businesses
  • businesses that cannot go digital will not be required to do so
  • all self-employed businesses and landlords with a turnover under £10,000 a year will not have to keep their records digitally or make quarterly updates, but can do so if they wish
  • the option to account for income and expenditure on a simple ‘cash in, cash out’ basis will be extended, helping an extra 2.5 million self-employed businesses and unincorporated landlords
  • charities will not have to keep their records digitally or make quarterly updates
  • customers will have at least 12 months to become familiar with the changes before any late submission penalties will be applied; following feedback from respondents, HMRC will also consult again in the spring on a new penalty model
  • HMRC will pilot these digital systems with hundreds of thousands of businesses before rolling them out to ensure the software is user friendly, and to give businesses and landlords time to prepare and adapt

Under HMRC’s plans to move recording and paying your tax online, most businesses, self-employed people and landlords will be able to keep track of their tax affairs digitally and update HMRC quarterly by 2020. This is part of the government’s commitment to make the annual tax return a thing of the past for millions of people and businesses.