Nearly 50% of small firms don’t understand digital tax plan
One of HMRC’s flagship tax plans has been lost on nearly half of the UK’s smallest businesses, according to a survey published by cloud accountancy software provider FreeAgent.
HMRC announced its ‘Making Tax Digital’ plan in the March 2015 budget and it is due to come into effect in April 2018, but this latest poll shows that some 43 per cent of sole traders, freelancers and other micro business owners didn’t even know that it existed.
A significant majority of the remaining 57 per cent said that they wanted more details on the proposals from HMRC.
“There is still a lot of work [by HMRC] to be done” said FreeAgent boss Ed Molyneux. “I hope that we see even greater clarity over the plans in the future so that micro-business owners feel fully informed”.
What are the proposals?
The ‘Making Tax Digital’ proposal is essentially a new, easier way of paying taxes online. It all centres on the new digital tax ‘account’ which will be given to all qualifying sole traders and would be accessed online.
One of the big misconceptions that has made some contractors nervous about the proposal is that Making Tax Digital would require sole traders to file four tax returns every year.
This is not the case. Instead, businesses will send easy-to-file summary data each quarter. Fortunately for Cloud Accounting customers, programmes such as FreeAgent and Xero will allow businesses to send this information from their existing bookkeeping software.
You will be able to update your HMRC record at the click of a button.
Each business will then have (a proposed) nine months after the financial year to file an “end of year declaration.” This represents your final figures for the year before the filing deadline.
In August, HMRC published consultation documents which contain a few more details and clues about the proposals.
At this stage, it looks like the proposals will only apply to sole traders and partnerships. The consultation document doesn’t address limited companies and directors, but we understand that this will be covered in a later consultation.
HMRC also propose that ‘Making Tax Digital’ would only apply after some £10,000 in annual income or turnover. This would discount some of the smallest businesses in the UK, particularly those that run a ‘side business’ or support their full-time job with bits of freelance work.
Although the policy is planned for April 2018, HMRC is considering giving the “smallest businesses” a year’s extension so they can get used to the changes slowly. It is so far unclear what counts as the “smallest businesses”. But it seems likely that this category will include lots of sole traders.
If you have any other questions about the Making Tax Digital proposals, or you would like to find out how accounting platforms like FreeAgent and Xero will make filing your taxes much easier in the future then please get in touch. Call Cloudaccountant.co.uk on 0808 281 0303