Making Tax Digital – The Consultations

The Government announced in 2015 the aim to transform the UK tax system to make HM Revenue & Customs (“HMRC”) the most digitally advanced tax authority in the world.

One of the headline announcements last year was the abolition of the annual tax return. Instead, individual taxpayers and businesses will be required to file electronically relevant information to HMRC using digital accounts on a quarterly basis. There has been considerable concern about the possible additional administrative burden and costs on small businesses. As a result, a consultation paper was published which has some very interesting proposals. Some of the proposals are outlined below.

New exemption for unincorporated businesses and landlord

One proposal is to exempt unincorporated businesses and landlords with gross turnover/rent below £10,000 from the quarterly reporting requirements.

It was also proposed to defer implementation of the quarterly reporting requirements for a limited group of unincorporated businesses and landlords with annual turnover below a set threshold. The precise threshold for which the deferment will apply is being consulted upon.

Cash basis – new higher threshold

The cash basis allows small unincorporated businesses to calculate taxable trade profits on the basis of money received and payments made (subject to certain tax adjustments).

Most unincorporated businesses with a turnover below the VAT registration threshold (currently £83,000) are eligible to use the cash basis to calculate the taxable trade profits. The limit is increased to twice the VAT registration threshold for recipients of Universal Credit.

The Government are considering the proposal to raise the cash basis threshold. There are a number of options, ranging from £100,000 to £166,000 (double the current VAT threshold) for the threshold.

Cash basis for unincorporated property business

Currently the cash basis cannot be used by landlords (unincorporated landlords) to calculate their taxable property income. The Government are considering the proposal to extend the cash basis to landlords of unincorporated property businesses.

Voluntary pay as you go

This proposal provides an opportunity for individuals and businesses to make voluntary payments throughout the year towards their tax liabilities. HMRC are not expected to alter the current payment dates.

Late submission penalties

The consultation proposes a new graduated model with each non-deliberate failure to submit information on time attracting penalty points. A penalty will only be levied once the points reach a set level. A stronger sanction will be levied for those who are deliberately non-compliant.

Late payment penalties

The consultation proposes new sanctions that provide a fair and proportionate response to late payment of tax and give adequate opportunity for those who have accidentally underpaid or overlooked a liability to correct this before sanctions apply.

Further information on all the proposals can be found via the link below:

https://www.gov.uk/government/collections/making-tax-digital-consultations

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